Contract Based Lending

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August 05, 2021

by a searcher from Lousiana State University in Houston, TX, USA

What main considerations should be taken into account when identifying and selecting the right lending partner as it relates to Contract Based Lending vs. Asset or Cash Flow based lending? Any information on preferred attributes of the contract would be greatly appreciated as well.

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Reply by a searcher
from University of California, Berkeley in San Francisco, CA, USA
Assuming you are not talking about factoring but on B/S...either way basics still applies. Long relationship history, low performance risk, low bad debt, non cyclical end-user industry, low concentration, maybe country of origin of those contracts, marketability of incomplete contracts. To name a few top of my head. CF typically has collateral shortfall thats mitigated in other ways. Asset based is % on tangible assets that can be liquidated easily.
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Reply by a professional
from Hobart and William Smith Colleges in Chicago, IL, USA
Force majeure provisions should be very clear for you. In the event that your customer(s) are/is unable to pay for your services on time then penalties and fees can add up and there should be some flexibility for that. You can send me a direct message with more details to prevent me from "needing-out" on this thread. haha.
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