Glossary

An account bank is the bank where collections and collateral accounts are established. This bank enters into a deposit account control agreement (DACA) with the Administrative Agent.

In private credit deals, the administrative agent is usually the lead bank or its affiliate; it represents the lender in dealing with the borrower on an ongoing basis (and will be the primary point of contact for the borrower).

The advance rate determines how much a capital provider will lend to a corporate borrower (i.e., max advance amount), as a percentage of the borrower's total collateral. For example, if a borrower has $10 million in collateral and an advance rate of 80% with a capital provider, the capital provider will offer the borrower $8 million in credit. In the context of fintech borrowing, an advance rate typically determines how much a startup can borrow against its outstanding receivables.

An advance request is a borrower's request for funds from a capital provider, after a debt raise. For example, after a borrower closes on a $25M credit facility, they might want to submit a $2M advance request to access funds for the first time.

When a borrower assigns a receivable to a special purpose vehicle (SPV), it is giving a lender the right to the future payments of that receivable. Receivable assignment, at the most fundamental level, is when a borrower provides customer- and receivable-level metadata to a lender and signs documents that transfer legal ownership of the receivable to a bankruptcy-remote SPV (which is controlled by the lender).

A backup servicer is a company that takes over the servicing duties (i.e., the collection and recording of loan and interest payments) for a portfolio of assets or receivables when a primary servicer can't perform its duties.

A borrowing base is the amount of money a company can borrow from a lender. Fintechs and other companies that rely on asset-based borrowing need to calculate and report on their borrowing base on a regular basis to maintain access to their debt line.

The borrowing base reserve amount is the sum of the accrued fees and expenses that a borrower owes a capital provider on the next settlement date.

Collections paydown and recycle requests are both borrower requests to move money from the collections account. In a paydown request, borrowers ask to use the money from the collections account to reduce their outstanding loan balance. In a recycle request, borrowers ask to move the money from the collections account to their parent operating account (typically to fund further originations).

A concentration limit is the percentage of a borrower's total receivables portfolio that can come from one customer category while still getting "full credit" from a lender. When receivables in an asset portfolio exceed a concentration limit (at which point they are considered "excess concentration"), capital providers do not lend against the excess receivables. Typically, concentration limits are outlined in credit agreements beween borrowers and lenders.

Covenants are restrictions that debt capital providers attaching to lending agreements to provide capital guidelines and conditions for their borrowers. In other words, the covenants of a credit agreement are the things that a borrower has to do (or not do) in order to maintain access to their source of capital.

A credit agreement is a legally binding contract between a lender and a borrower that spells out all the details and rules of a loan. In the context of debt capital, or the type of loans that fintechs and other high-growth companies rely on for expansion, credit agreements lay out all the key terms of a loan, including how much the loan is for, what the interest rate on the loan is, and what rules borrowers have to follow in order to maintain full access to their debt capital.

A credit facility is a type of preapproved loan that businesses can access on an ongoing basis, rather than having to take out the whole loan at once. The size of a credit facility is like the limit on a credit card: businesses can access up to the full amount of the credit facility, but they are more likely to access a portion of the credit facility and pay back their loans on an ongoing basis.

Deposit account control agreements are three-party agreements between a borrower, a lender, and a bank. The bank essentially controls the account in a "lockbox" arrangement, and the borrower must request permission from the lender in order to initiate a transfer of funds to another account. DACAs are required in many asset-backed lending arrangements, particularly those that require fintech receivables to be pledged as collateral to a lender.

A draw request is a borrower's request for funds from a capital provider. In many debt capital deals, borrowers receive funds over the course of a year or two, rather than as a lump sum. A draw request is how borrowers access a portion of the loan that they've already negotiated—provided that they're in compliance with the conditions of their credit agreement when they make their request.

An account bank is the bank where collections and collateral accounts are established. This bank enters into a deposit account control agreement (DACA) with the Administrative Agent.

Total exposure is the total value of all receivables that haven't been repaid. Importantly, not all exposure can necessarily be borrowed against, as some receivables may not fulfill the eligibility criteria outlined in a credit agreement. This is why borrowing bases are calculated based on total eligible exposure rather than just total exposure.

A forward flow arrangement is when an investor agrees to buy a set of loans originated by another party. In a forward flow arrangement, the investor and originator agree on the price and eligibility criteria of the loans in advance.

A funding notice is a notice submitted by the borrower to the capital provider (typically in a specified form that is a schedule to the credit agreement) documenting the draw request. Credit agreements will usually outline the number of days of advance notice that a borrower must give a lender, when requesting funding.

Funding requests are borrower requests for some sort of credit facility transaction. These transactions are the building blocks of a company’s debt capital and capital markets operations, particularly if that company has taken on a warehouse line of credit.

Interchange fees are transaction fees that the bank issuing a credit card must pay to the merchant's bank, whenever a card customer uses the card to pay for something. Interchange fees underpin the revenue models of many fintechs.

An interest rate is the amount of the loan that is charged to the borrower, as interest. Interest rates for credit facilities are outlined in credit agreements.

A ledger is an account or record used to store bookkeeping entries. In the world of private credit (and asset-backed lending, in particular), borrowers and lenders often lack a shared, real-time ledger due to the disjointed nature of transactions.

A loan tape is a snapshot of a fintech's customer base and outstanding balances, as well as other information on customer characteristics (e.g., geography, industry, FICO scores, etc.) and risk profiles. In the context of fintech data and debt capital, you'll also hear loan tapes called servicing tapes, collateral feeds, and loan exposure tapes.

Some private credit deals require a third-party paying agent to receive and hold on to collections, and make monthly payments to the lenders.

Securitization is the conversion of different types of debt, such as auto loans, credit card debt, or mortgages, into a rated security that can be sold to outside investors.

The loan servicer is the entity that will service and administer the receivables on behalf of the borrower, if the borrower is a specialty finance company. The servicer will often provide regular servicing reports to the administrative agent and/or the lender. It is not uncommon for fintech borrowers to be their own servicers.

The settlement date is the date on which the waterfall runs, including any pending draws, recycles, cures, or paydowns. This is also the date on which interest and fee payments are made.

In the context of asset-backed lending, a special purpose vehicle (SPV) is a legal entity created to house financial risk. Investors and/or companies create SPVs to fund investments, isolate financial risks, or set up the securitization of assets.

A term sheet is a non-binding document that lays out the key conditions of an investment, whether that investment is in venture capital, debt capital, or another investment area. Term sheets typically contain information like the size of an investment, what investors expect in return for an investment (e.g., an ownership percentage, interest payment, etc.), and any exclusivity agreements that may come with the investment.

A verification agent is a company that checks the accuracy of a debt capital borrower's origination data and reporting. Capital providers often require that borrowers appoint a verification agent prior to the execution of an asset-backed credit facility, as the verification agent's "stamp of approval" on borrower collateral reduces the riskiness of the credit facility and protects against excess advances in funding.

A warehouse facility or line of credit is a type of loan that companies take out in order to issue loans of their own. It's the type of bank loan a specialty finance company would take out when they want the flexibility to scale up their lending operations.

The payment waterfall is the order in which different creditors and vendors get paid every month or quarter. This interest and fee payment sequence is like water flowing through two buckets stacked on top of one another (hence the term waterfall). The top bucket, representing the interest expense on the loan, must be completely full before any money can overflow into the bottom bucket. This bottom bucket represents excess cash that the company can access.