Getting to Close

Closing a first institutional receivables facility is a project, not an event. The term sheet starts a working process that runs through diligence, entity work, document negotiation, operational testing, and finally a funding request that turns commitment into cash. Much of that work sits with you rather than with the capital provider, and there are several distinct moments between "we agreed" and "money moved."

Three of those moments are worth tracking separately, even where they fall on the same day.

• Signing means the facility documents are executed. You have a legal agreement. You do not necessarily have money.

• Availability means the conditions to effectiveness or first draw have been satisfied or waived and the facility is open. This is a document-and-checklist milestone.

• First cash means a specific draw has been requested, the borrowing base supported it, the provider funded, and the money settled in the account you expected. This is the day your treasury forecast cares about.

Plan your origination pipeline against first cash. Originators who commit to sellers or borrowers on the assumption that signing equals funding create a gap they then have to bridge with their own balance sheet.

From term sheet to diligence

A term sheet sets the shape of the deal: facility size, advance rate, broad eligibility, pricing structure, tenor. Which provisions bind and which do not depends on the drafting and the governing law. Exclusivity, confidentiality, and expense reimbursement clauses are commonly drafted to survive even where the commercial terms do not, but read the document rather than assuming the convention, and have counsel confirm what you are actually agreeing to.

Diligence then runs on parallel tracks, and you should treat it that way rather than sequentially. Credit and portfolio diligence looks at your loan tape, cohort performance, and underwriting. Operational diligence looks at servicing, collections, systems, and controls. Legal diligence looks at your documentation, assignment mechanics, and corporate structure. Each track has a different counterparty on the provider side, and each will send requests assuming you have one person coordinating.

Appoint that person early. On a first facility this is often the CFO or head of capital markets, and the job is real: tracking open items, chasing internal owners, keeping the diligence room current, and making sure the same question asked three ways by three teams gets one consistent answer.

Diligence findings and internal approvals can move terms that felt settled at the term sheet stage. The final terms of the facility are governed by the executed agreements, alongside any term sheet obligations drafted to survive.

The underwriting analysis behind a borrowing base facility follows recognisable lines: collateral quality, the reliability of the reporting that measures it, and the controls around cash and collateral administration. Those concerns travel across asset classes and structures. If your borrowing base reporting cannot be reconciled to your ledger, that is a problem in any facility.

Readiness work that makes diligence go quickly is covered in what you need. If you are reading this before you have a term sheet, start there.

KYC and entity work

Know-your-customer and anti-money-laundering checks require identification documents and ownership information for the borrowing entity, its parent, and often individual beneficial owners above a threshold set by the provider's compliance policy. Unresponsive owners and incomplete documentation are a common cause of delay, and the workstream depends on third parties returning things on their own schedule, so open it early.

Entity work runs alongside. Many receivables facilities lend to a special purpose vehicle — a separate legal entity formed to hold the financed receivables and borrow against them, kept apart from the operating company's other assets and liabilities. That structure is one illustrative approach rather than a requirement, and what your provider expects will come out of negotiation. An existing entity may be usable where it meets the structural and separateness requirements the documents impose, which avoids formation work entirely. Where a new vehicle is used, the work includes forming it, adopting governing documents, appointing any independent director or manager the structure requires, opening bank accounts, and completing tax registrations. Account opening has its own KYC cycle and can take longer than the rest of the entity work.

Whether a given structure achieves separateness, how the transfer of receivables into the vehicle is characterised for legal and accounting purposes, and how the arrangement is treated on your financial statements are questions for your counsel and auditors. These are substantive analyses, not paperwork. Do not assume an outcome because a similar structure worked for someone else. Get the analysis in writing, early enough that a negative answer does not blow up the timetable.

Negotiating the agreement

Document negotiation typically runs from a first draft prepared by the provider's counsel. Your counsel marks it up, the parties turn drafts, and open commercial points escalate to the principals.

Two habits keep this efficient. Maintain a live issues list separating genuine commercial disagreements from drafting cleanups, and escalate only the former. And have your operations team read the reporting, servicing, and eligibility provisions before you agree to them. Counsel negotiates what the clause says. Only operations knows whether you can produce a daily collateral report by 11am or apply a specific eligibility test at loan level.

The published UACC warehouse agreement, amended through November 2023, shows how these obligations look once drafted: the opening pages set out the parties and their roles, Article Four collects the closing conditions, and Article Seven covers servicing duties and reporting deliverables. It is one historical agreement containing redactions, not a template, but reading a real one before you negotiate yours is time well spent. The full document is on EDGAR.

Which points are worth fighting for, and what you trade to win them, is the subject of negotiating terms.

Conditions precedent

Conditions precedent are the items that must be satisfied before something happens, and your documents may set out more than one set. Conditions to effectiveness govern when the agreement itself takes effect. Conditions to the first draw are typically the longest list. Conditions to each subsequent draw are usually shorter and recurring — a current borrowing base certificate, repeated representations, no default. Read which list attaches to which event, because satisfying the effectiveness conditions does not necessarily mean you can draw.

On a first facility, expect executed facility and security documents, corporate authorisations and incumbency certificates, legal opinions on matters the provider specifies, evidence of security perfection, account control or blocked account arrangements, the servicing agreement and any backup servicing arrangement, insurance evidence, an initial borrowing base certificate, and confirmation that upfront fees have been paid or will be paid at closing.

The conditions to watch are the ones that depend on a third party. Legal opinions depend on your counsel completing their analysis. Perfection evidence depends on filing offices. Account control agreements depend on the bank's own legal team, which works to its own schedule. Identify every third-party-dependent condition at the start and start those requests immediately.

Some conditions get waived or deferred into a post-closing covenant. That can be sensible, but each deferral becomes a dated obligation with consequences if missed. Keep a post-closing list with owners and dates, and treat it as seriously as the pre-closing list.

Collateral and operating tests

Before funding, the provider will want to see that your operational plumbing works, not just that you described it accurately.

That usually means a test run of the borrowing base calculation on a real cut-off date, with your file reconciling to the provider's independent recalculation. It means a sample of loan files pulled and matched against tape fields. It means confirming the collection accounts receive money the way the flow of funds memo says they do, and that the account control mechanics operate. Some providers run a small test transfer through the account structure before the first real draw.

Do a dry run internally first. Produce a full borrowing base certificate on a live date, reconcile it to your ledger, and have someone who did not build the file check it. Finding a field mapping error in your own rehearsal is cheap. Finding it in the provider's test costs credibility and time.

Account instructions and payment security

Verify payment instructions independently, through a channel you established separately from the message that delivered them.

Closing is exactly the environment payment fraud targets. There is a large, one-time, unusual transfer, multiple counterparties you may have met only by email, time pressure, and an executive who wants the deal done. A message arriving on closing morning saying the wire details have changed is a scenario every treasury team should have rehearsed.

Confirm account details by phone with a person whose number you obtained from a prior source, not from the email carrying the instructions. Apply the same rule to your outbound instructions and expect counterparties to call you back. Document the verification. This applies to the funding wire, to fee payments, and to any equity contribution moving between your entities.

The funding request

Drawing money requires a borrowing request that complies with the notice mechanics in your agreement. Those mechanics are contractual and vary between deals, so read yours and put the deadlines in a calendar rather than assuming a market convention. Some structures allow a request to be submitted while conditions are still being cleared, with satisfaction of those conditions operating as a condition to funding rather than to submission. Check which applies before you build a sequence around it.

A first draw generally requires a borrowing base certificate as of an agreed cut-off, a schedule of the receivables being financed, representations repeated as of the funding date, confirmation of no default, and evidence that your equity contribution is in place. Whether your equity prefunds the vehicle ahead of the advance or settles simultaneously with it is a question your documents answer. Both are workable, and the sequencing matters for treasury planning, so confirm which one applies before you build a funding calendar around it.

Commitment mechanics, borrowing base construction, and equity sequencing are worked through in how facility funding works.

Cash settlement and handover

On funding day, money moves and the facility becomes live. Reconcile immediately: confirm the amount received matches the amount requested, that fees deducted at settlement match what you agreed, and that the collateral purchase settled against the correct schedule of receivables. Discrepancies are easier to resolve on day one than in the following month's reporting cycle.

Then hand over. The team that closed the facility is often not the team that runs it. Whoever owns ongoing reporting needs the executed documents, a plain-language summary of every recurring obligation with its deadline, the borrowing base template as agreed, the covenant definitions as drafted, and a calendar of reporting dates. One failure mode on first facilities is a technical reporting breach shortly after close because nobody transferred the deadline list from the closing checklist into an operating calendar.

Delays, abort costs, and what you owe if it fails

Timelines slip for predictable reasons: KYC on an unreachable beneficial owner, account control agreements sitting with a bank's legal team, a legal opinion that surfaces a structural question, a data reconciliation that fails and has to be rebuilt, or a diligence finding that reopens a commercial term.

If the deal dies before closing, the cost question is contractual. Term sheets often contain an expense reimbursement provision requiring you to cover the provider's legal and diligence costs whether or not the transaction completes. Some cap that exposure, some do not. Your own counsel and advisers charge according to their engagement terms, which may include contingent or success-based arrangements — check what you signed. Whether you owe a break fee, a funding-loss payment, or nothing at all likewise depends entirely on what you signed. Read the expense and termination provisions before you sign, not when the deal is falling apart. How these costs show up in your all-in economics is covered in facility fees and all-in cost.

Closing timetables vary widely with structure, jurisdiction, counterparties, and how much readiness work you did in advance.

Ready-to-fund checklist

Before first funding, confirm each applicable item by the deadline in your documents; a borrowing request may be submitted earlier where permitted:

• Facility, security, and servicing documents executed and dated
• Conditions to effectiveness and to first draw identified separately, and each satisfied or waived in writing with any deferral recorded on a dated post-closing list
• Corporate authorisations, incumbency certificates, and legal opinions delivered
• Security perfection filed and evidenced
• Borrowing vehicle in place — whether newly formed or an existing entity that meets the structural requirements — funded, tax-registered, with independent director or manager appointed if the structure requires it
• Collection and funding accounts open and operating, with control agreements in place
• Borrowing base certificate produced on a live cut-off and reconciled to your ledger by a second reviewer
• Loan file sample tested against tape fields with discrepancies resolved
• Payment instructions for every leg verified by call-back to an independently sourced number
• Equity contribution positioned as your documents require, whether prefunded or settling simultaneously with the advance
• Upfront fees agreed, invoiced, and scheduled
• Reporting calendar built, owner named, first three deliverables dated
• Backup servicer engaged if the documents require it
• Recurring conditions for subsequent draws documented and understood by whoever will submit them

The economics of what happens after all this is done, including the interaction of advance rate, fees, and losses in the first year, are worked through end to end in the warehouse example.

A first facility close rewards process discipline more than cleverness. What remains after negotiation is a long list of items that are individually manageable and collectively capable of holding up your first draw. Run it like a project, name an owner for every line, and start the slow items first.