Borrowing base: how lenders decide what you can drawOn an asset-based line, the limit on the loan agreement is not what you can borrow. The borrowing base is, and it changes every time your receivables and inventory do.Can a business borrow with a federal tax lien on file?A federal tax lien is a competing claim on the same assets a lender wants as collateral, and on some of them it wins. Lenders can close around it, but only with a plan they can see before they start underwriting.Can the seller stay on after an SBA acquisition?Most buyers want the seller around long enough to hand over customers, suppliers and know-how. SBA allows that only in one form, for a limited time, and a seller who keeps any equity changes the whole application.Debt service coverage ratio (DSCR): what it is and how lenders use itDSCR is the first number most lenders compute on a file, and often the one that decides how large the loan can be. Small differences in how it is calculated can move a deal from yes to no.Do lenders need audited, reviewed or compiled financial statements?The level of CPA work on your statements tells a lender how far it can rely on them. Most private-company loans do not need an audit, but the answer changes with the lender, the structure and the size of the credit.Does my spouse have to sign the personal guarantee?Usually not, if you qualify on your own. But a spouse who co-owns the collateral, lives in a community property state or holds shares in the business can end up signing something, and it matters exactly what.EBITDA add-backs: which ones lenders credit, and whyAdd-backs are often the biggest gap between what an owner thinks the business earns and what a lender will lend against. The gap is decided less by the argument than by the paper trail.Fixed charge coverage ratio (FCCR): the stricter cousin of DSCRFCCR asks whether the business covers its debt after it has paid for the things it cannot skip: equipment, taxes and what the owners take out. It is the covenant a business can trip in a good year.Full standby: what it means when a seller note goes on standbyIn an SBA acquisition, the difference between a seller note on full standby and one that is paid decides whether the note counts as equity, how the lender measures coverage, and when the seller sees any money.How is EBITDA defined in a credit agreement?The EBITDA in your pitch and the EBITDA in your loan are two different numbers. Covenants are tested on the second one, which is built line by line in the definitions section.How is the maturity set on an SBA loan with mixed uses?SBA sets a different maximum term for each thing a 7(a) loan can buy. When one loan buys several of them, the lender blends those terms into one, and the blend decides the monthly payment, the coverage ratio and whether a prepayment charge applies.Orderly liquidation value vs fair market value in an equipment appraisalAn equipment appraisal usually gives three or four values for the same machine, and they can be far apart. Which one your lender uses decides what the equipment is worth to your loan.Should my financials be on an accrual or cash basis for a lender?Plenty of healthy businesses keep cash-basis books because the tax return allows it. A lender, though, is measuring earnings and working capital, and cash accounting can show either one wrong in both directions.What are affirmative covenants in a business loan?Affirmative covenants look like housekeeping, and most owners skim them. They are also the covenants an owner-run company is most likely to break, usually by missing a date rather than a number.What are conditions precedent to closing a business loan?An approved loan is not a funded loan. Between the commitment letter and the wire sits a checklist of conditions, and closings slip on the items nobody started early.What are contra accounts in a borrowing base?When a customer that owes you money is also owed money by you, it can settle one against the other. An asset-based lender counts on that receivable being paid in cash, so it takes the overlap out of what you can borrow against.What are negative covenants in a loan agreement?Negative covenants decide what the owners can do without asking the lender first. The prohibitions are standard; the exceptions, called baskets, are where the business's freedom is won or lost.What are representations and warranties in a loan agreement?Every credit agreement has a section in which the borrower states, as fact, what the lender is relying on. If one of those statements turns out to be wrong, the lender can call a default even when every payment has been made.What are restricted payments, and can I still take distributions?The restricted payments covenant decides how much cash can leave the business for its owners while the loan is outstanding. For pass-through owners it also decides whether their tax bill gets paid.What are SBA affiliation rules and size standards?A business can be well inside its industry's size standard and still fail it, because SBA measures the applicant together with every business it is affiliated with. Buyers who own other companies, or who bring in investors, meet this rule first.What counts as an event of default on a business loan?Most borrowers think default means a missed payment. Most loan agreements list a dozen other triggers, and a business can be in default while every payment is on time.What counts as funded debt in a leverage covenant?A leverage ratio is only as meaningful as its top line. Two credit agreements can test the same company at the same ratio and reach opposite answers, because they count debt differently.What does debt-free, cash-free mean in a business sale?A headline price is not what the seller receives, and not what the buyer's lender pays out. Debt-free, cash-free is the convention that converts one into the other.What does joint and several liability mean for co-borrowers?When two or more of your companies sign the same loan, each one owes all of it. That is often the right structure, but it changes what each company is risking and what it takes to separate them later.What does LTM or TTM mean on a lender's term sheet?Almost every figure a lender quotes back to you is measured over the last twelve months. Knowing how that window is built, and how it moves, explains both how big the loan can be and when a covenant can bite.What does pari passu mean in a loan structure?When two lenders rank equally, neither can get ahead of the other, and a loss is shared in proportion. That sounds simple until the business needs an amendment and both lenders have a say.What does SOFR plus a spread mean on a loan?Floating-rate loans from private credit funds and larger banks are usually quoted as SOFR plus a number. The number is the part you negotiate; SOFR is the part that moves, and the details around both decide what you actually pay.What fees should I expect when closing a business loan?The interest rate is the number every lender leads with. The fees are where two offers at the same rate stop being the same offer, and some of them are owed whether or not the loan ever closes.What is a blanket lien on business assets?Most business loans come with one. It is the reason a second lender, an equipment lender or a buyer's new bank has to ask your current lender's permission before it can take collateral of its own.What is a borrowing base certificate, and how often is it due?Every asset-based line runs on a document an officer of the business signs, usually every month. Lenders read it as a statement of fact, and they check it against the books.What is a business debt schedule, and how do you build one?Every lender asks for it, and most owners have never made one. It is a single page, but the coverage ratio, the loan size and the payoff list are all calculated from it.What is a change of control clause in a loan agreement?Lenders lend to people as much as to companies. The change of control clause is how they make sure the people they underwrote are still in charge, and it can catch an estate transfer or a partner buyout as easily as a sale.What is a commitment letter, and how is it different from a term sheet?A commitment letter is the first document in which a lender promises to lend. It is also a list of the ways that promise can lapse, and the owners who read it that way are the ones who close.What is a compliance certificate and who signs it?Every loan with financial covenants needs a way for the lender to see whether they were met. The compliance certificate is that document, and because an officer signs it, it carries more weight than the spreadsheet behind it.What is a concentration limit in a borrowing base?Your largest customer may be your best customer. To an asset-based lender it is also the single point of failure in the collateral, so receivables from it above a cap do not count.What is a credit memo and what goes into it?The borrower never sees it, but every loan decision is made on it. The better a borrower's package anticipates the memo, the less the underwriter has to guess.What is a cross-default clause?A cross-default clause links your loans together, so trouble with one creditor becomes trouble with all of them. An owner with a bank loan, equipment notes, a seller note and a lease needs to know exactly which link runs where.What is a current ratio covenant on a business loan?The current ratio is one of the oldest tests in a bank loan, and one of the easiest to fail by accident. A single reclassification on the balance sheet can take a healthy company through the floor.What is a default interest rate?Most borrowers never read the default rate clause until they need to. By then it is accruing, sometimes from a date before anyone noticed the breach, and it has become part of what the lender brings to the negotiation.What is a delayed draw term loan (DDTL)?A delayed draw term loan lets a business lock in financing today for an acquisition or a build-out it has not closed yet. The commitment is real, but so are the fee for holding it and the tests at every draw.What is a deposit account control agreement (DACA)?If your lender is not the bank that holds your accounts, it will ask for one of these for each account that matters. It is a three-party document, and the terms you agree to decide who can move your cash and when.What is a field exam in asset-based lending?An asset-based lender advances money against the numbers on your borrowing base certificate. The field exam is how it finds out whether those numbers are real, and its findings set what you can actually borrow.What is a landlord waiver (collateral access agreement)?Your lender has a lien on the inventory and equipment in your building. Your landlord may have one too, and controls the doors. A landlord waiver settles who comes first and whether the lender can get in.What is a lender CIM (confidential information memorandum)?Lenders decide on a story and a set of numbers. When the two arrive separately, the lender assembles them itself, slowly and conservatively. A CIM delivers them together.What is a letter of intent (LOI) in a business acquisition?The letter of intent is short, mostly non-binding and signed early, and it still decides more about the financing than any document that follows. It is the first page of the deal a lender reads.What is a leverage-based pricing grid?On many cash-flow loans the spread is not one number but a ladder. Where you stand on it each quarter depends on your last compliance certificate, and a buyer who deleverages after an acquisition climbs down it.What is a material adverse change (MAC) clause in a loan?The MAC clause is the lender's catch-all: the right to treat a serious deterioration in the business as a reason not to fund, or as a default, even when no specific covenant has been broken. How it is worded decides how much discretion that gives the lender.What is a minimum tangible net worth covenant?Tangible net worth is a balance-sheet test many banks still write into their loans. For a company that has just been bought, the standard version can be in breach on the day it closes.What is a negative pledge clause?A negative pledge does not give a lender any claim on your assets. It stops you giving one to someone else. That is often enough to block an equipment loan or a second lender you were counting on.What is a payoff letter and why does closing depend on it?A new loan cannot close until every lender it replaces has said, in writing, exactly what it takes to be paid off and that it will let go of its liens when it is. That letter is often the last document in, and the one that moves the closing date.What is a personal guarantee on a business loan, and can it be limited?The guarantee is the one loan document that follows the owner home. How much of it can be negotiated depends less on the owner's bargaining than on what kind of lender is across the table.What is a purchase money security interest (PMSI)?Your bank has a lien on everything you own, including anything you buy later. A purchase money security interest is the rule that still lets another lender finance a new machine and be paid first from it.What is a quality of earnings (QoE) report?Every acquisition is priced on an earnings figure, and every acquisition loan is sized on one. A quality of earnings report is how buyers and lenders find out whether that figure is real.What is a second lien loan?When the senior lender will not stretch to the purchase price and the buyer does not want to give up more equity, a second lien loan is one of the ways to close the gap. It is secured debt, but it waits in line.What is a senior leverage ratio, and how is it different from total leverage?The senior lender's ratio counts only the debt that stands with it at the front of the line. The distance between that ratio and total leverage is where seller notes and mezzanine have to fit.What is a sources and uses table?It is the shortest document in any financing and the first one a lender reads. If the two columns do not balance, nothing else in the package is believed.What is a springing covenant on an asset-based line?Most asset-based lines carry a fixed charge coverage test that sleeps until availability runs thin. The owners who get caught by it are usually the ones who never modeled when it would wake up.What is a subordination agreement?Seller notes, shareholder loans and mezzanine debt almost always come with one. It decides when the junior creditor may be paid, what happens to those payments after a default, and how long it must wait to act.What is a total leverage ratio (debt to EBITDA)?Before a lender argues about rate, it decides how many times earnings it will lend. That one multiple usually caps the deal, and it is tested again every quarter after closing.What is a UCC-1 financing statement?A UCC-1 is a one-page public notice that a creditor claims an interest in a business's assets. Every lender you have ever given a lien to has probably filed one, and many never removed it.What is a UCC-3, and how do you remove an old lien?A loan can be paid off for years and still show up as a lien. Until someone files the right form, the next lender sees a creditor with a claim on the business, and it will not close around one.What is a validity guarantee in asset-based lending?Some asset-based lenders will take a narrower promise from the owner in place of a full personal guarantee. The owner is not on the hook if the business fails, only if the collateral turns out not to be what was reported.What is a working capital peg?A purchase price buys a business that can operate on the day it changes hands. The peg is the number that says how much working capital that takes, and the true-up is how the price moves when the business arrives with more or less.What is an accordion feature on a credit facility?An accordion is written into a credit agreement as if it were extra capacity. It is really a pre-agreed way to ask for more, and no lender has promised to say yes.What is an airball in a loan structure?Most acquisitions and many growth loans need more money than the company's assets would fetch in a liquidation. Who is willing to lend that gap decides which lenders can do the deal and how it is split.What is an annual clean-up (rest) period on a line of credit?The clause is one sentence long, and it is the bank's test of whether your line of credit is really a line of credit. A business that cannot pass it usually has term debt sitting in the wrong place.What is an availability reserve on an asset-based line?Advance rates and ineligibles are written down at closing. Reserves are the part of the borrowing base the lender can change afterwards, which makes the definition in the credit agreement worth reading line by line.What is an eligible passive company (EPC) in SBA lending?Many owners keep their building in a separate company from the business that uses it. SBA normally will not lend to a company that only holds property, and the EPC rules are the exception that makes this structure financeable.What is an equity cure right in a loan agreement?An equity cure turns a covenant breach from a default into a cash call on the owners. How the cure is counted decides how much cash it takes, and the limits decide how long it can keep working.What is an equity kicker or warrant in a loan?Some lenders are paid partly in interest and partly in a slice of your company's future value. The slice looks free at closing and can be the most expensive term in the deal.What is an excess cash flow sweep?A sweep turns a share of each good year into an extra loan payment. It is common in private credit and unitranche loans, and it decides how much cash the owners actually get to keep.What is an indemnity escrow or holdback in an acquisition?The seller promises the business is what it appears to be. The escrow or holdback is the money that stands behind that promise, and it has to fit inside a financing that is already paying the full price.What is an independent sponsor, and how are their deals financed?An independent sponsor has a deal but not yet the money. Lenders will finance that deal, once they are sure the equity is real and understand who stands behind the company after closing.What is an intercreditor agreement?When a business has two secured lenders, a contract between them decides who gets which collateral, who can act first in a default, and what either can change without the other. The borrower lives with every one of those terms.What is an interest rate floor on a business loan?A floor looks like boilerplate while rates are high. It becomes the most expensive line in the agreement the moment the base rate drops below it, and it can quietly break an interest rate hedge.What is an interest-only period on a term loan?A few months without principal payments can carry a business through an integration or a build-out. The clause that grants them also decides how sharply payments rise when the pause ends.What is an overadvance on a line of credit?The same word covers a negotiated feature a seasonal business depends on and a breach that forces immediate repayment. Which one you have depends on whether the lender agreed to it first.What is an SBA loan authorization?The authorization is the document the lender has to close to, line by line. Every condition in it is something the borrower will be asked to prove before the money moves.What is an SBA Preferred Lender (PLP)?Delegated authority decides who says yes to an SBA loan: the lender alone, or the lender and then SBA. It changes the route a file takes, not the rules it has to meet.What is an unused line fee?A committed line costs money even on the days you do not use it. Whether that cost is worth paying depends almost entirely on how the commitment was sized.What is call protection or a prepayment premium on a private credit loan?An owner who plans to sell or refinance within a few years should read the prepayment section of a term sheet as closely as the rate. Call protection can make the loan payoff one of the largest surprises in the closing statement when an owner exits early.What is cash dominion and a lockbox in an ABL facility?On an asset-based line with cash dominion, the money your customers pay you goes to the lender first. You run the business on what you draw back. It works well, as long as you plan your cash around it.What is collateral coverage, and how do lenders discount collateral value?A lender does not value your assets at what you paid for them or what they are worth to you. It values them at what it could recover in a forced sale, and compares that with the loan.What is covenant headroom, and how much should you negotiate?Headroom is the distance between where the business is expected to be and where the loan goes into default. Set it too thin at closing and an ordinary bad quarter becomes a lender problem.What is days sales outstanding (DSO) and why do lenders track it?DSO is the average number of days it takes a business to turn a sale into cash. For a lender with a line against receivables, a rising DSO is often the first sign that the collateral is getting weaker.What is dilution in asset-based lending?Every credit memo, return, discount and write-off means a receivable collected less than its face value. An asset-based lender measures that gap, and if it runs higher than the advance rate allows for, availability comes down.What is excess availability on a revolving line?On an asset-based revolver, the covenants, the reporting schedule and control of your cash can all turn on one number. It is not the balance on the line. It is the room left under it.What is global cash flow analysis, and why do SBA lenders run it?An SBA loan is repaid by a business and guaranteed by its owners, so the lender underwrites both together. A business that covers its own debt comfortably can still fail once the owner's mortgage, car loans and other guarantees are added in.What is in a debt term sheet?Two term sheets for the same amount can describe very different loans. The rate is the easiest line to compare and rarely the one that matters most.What is IRS Form 4506-C, and why does my lender need it?The lender does not take your tax returns on trust. It asks the IRS what was actually filed, and a loan can stall at closing if the two do not agree.What is maintenance capex, and why do lenders subtract it?EBITDA ignores the trucks, machines and ovens a business must keep replacing. A lender does not, and how much of your spending it treats as maintenance can move your borrowing capacity by a wide margin.What is net orderly liquidation value (NOLV) for inventory?Your balance sheet carries inventory at cost. An asset-based lender carries it at what it would bring in a wind-down, after paying for the wind-down. The gap between the two decides how much of your line the inventory supports.What is original issue discount (OID) on a loan?A term sheet that says the loan is issued at 98 is charging a fee without calling it one. The borrower owes the full amount, receives less, and the difference costs more the sooner the loan is repaid.What is PIK interest?PIK keeps cash in the business today by adding interest to the debt. The bill arrives at the exit, larger than the rate suggests, and it arrives whether or not the plan worked.What is pro forma EBITDA in an acquisition loan?Pro forma EBITDA is the number an acquisition loan is sized on. The buyer's version and the lender's version are rarely the same, and the gap between them is decided by documentation.What is purchase price allocation and IRS Form 8594?The allocation decides how fast the buyer can deduct what it paid, how the seller is taxed, and what a lender sees behind its loan. One schedule, three audiences.What is rollover equity in a business sale?A seller who rolls equity sells most of the business for cash and keeps a stake in what comes next. It reduces the cash a buyer needs, changes how the loan is underwritten, and turns the seller into a minority owner with a new set of rights to negotiate.What is SBA Form 159 and why does it disclose broker fees?On an SBA loan, nobody gets paid for helping in secret. Form 159 is the record of who was paid, by whom, and for what, and the borrower signs it.What is SBA Form 1919?It is a few pages of yes-or-no questions, and it is where most SBA eligibility problems first come to light. A wrong answer is worse than an awkward true one.What is SBA Form 413, the personal financial statement?The business is the borrower, but the owners guarantee the loan. Form 413 is how the lender sees what stands behind that guarantee.What is SBA SOP 50 10, and why does it matter to borrowers?Every SBA rule a borrower runs into, from the down payment to the seller's note to who signs the guarantee, is written in one document. When it changes, deal structures change with it.What is structural subordination in a holdco/opco structure?No document says a holding company's lender ranks last. The corporate chart does. That is why lenders care which entity signs the loan, and why acquisition debt nearly always reaches the operating company.What is the cross-aging rule for receivables?Most owners expect old invoices to drop out of the borrowing base. Fewer expect a customer's current invoices to go with them. Cross-aging does exactly that, and one slow account can take a large bite out of availability.What is the difference between amortization and maturity on a loan?Two numbers on a term sheet decide how much a loan costs you each year and when you must find the money to repay it. They are easy to read as one number, and they are not.What is the interest coverage ratio in a loan covenant?Interest coverage ignores principal and asks only whether earnings pay the interest bill. On a floating-rate loan with little amortization, that is the test that moves when rates do.What is the maximum interest rate on an SBA 7(a) loan?SBA does not set your rate, but it sets the most a lender may charge. The ceiling is lowest on the loans most business buyers take, and the rate is still only part of what an SBA loan costs.What is the SBA credit elsewhere test?An SBA loan is meant for a borrower the conventional market will not serve on reasonable terms. The lender has to write down why, and sometimes the honest answer points to a conventional loan instead.What is the SBA guaranty fee and how is it calculated?It is often the largest single fixed cost on an SBA 7(a) loan, and it is charged on a number most borrowers never see: the guaranteed portion, not the loan.What is the SBA prepayment penalty?Most SBA 7(a) loans can be paid off at any time for nothing. The exception is long loans, usually those with real estate, in their first three years, and it catches owners who sell or refinance sooner than they planned.When does the SBA require an independent business valuation?On most SBA acquisitions an outside appraiser has to agree the business is worth what the loan pays for it. The rule is simple arithmetic, and knowing which side of it a deal falls on shapes the offer.Who has to personally guarantee an SBA loan?The 20% rule is simple to state and decides a lot: who can be a partner in the deal, how investors come in, and what each owner is putting at risk.Why do lenders require key person life insurance and a collateral assignment?When a business's ability to repay rests on one or two people, the lender wants a source of repayment that does not depend on them staying alive. The policy, and who gets paid from it first, is usually settled in the loan's closing conditions.Why would a lender require an interest rate swap or hedge?A floating-rate loan that works at today's rates can fail its coverage test after a few rate increases. A hedge requirement is the lender's way of making sure that does not happen, and the swap you sign is a second contract with its own exit cost.Will an SBA loan take my house as collateral?It might take a lien on it. On a larger SBA loan that business assets do not fully secure, which describes most acquisitions, the lender is expected to take available equity in the owners' real estate, including their homes.