Why Financial Transactions Do Not Close

There are generally three stages to underwriting and ultimately funding a factoring transaction; a) the application process in which basic information is provided by the borrower/applicant which, if all looks good on that front leads to b) the proposal which itemizes the pricing of the facility and requests the second group of documents usually the financials, taxes and industry specific items, and finally culminating in c) the closing documents generated by the lender/factor making it a legal and compliant transaction. So, what have we found through our experience that kills a transaction or stops it from any further progress.

During the first stage deal killers may be in the accounts receivable aging report that shows the receivables performance is contrary to a receivables form of finance or perhaps within the application itself containing items not commensurate with the funder’s underwriting rules. The second stage examines many different items such as taxes, financial condition of the applicant, systems and controls of the applicant exemplified by the ease of producing reports and documentation for verification. UCC status is searched to see if there are any encumbrances on the applicant’s assets specifically the receivables. Personal background checks and credit profile are performed in compliance with the “know your client” rules of finance. Some funding organizations also do an on-site visit to see the operations of the applicant and visit with staff and owners. Finally in the third step the legal documents are sent by the lender/factor to consummate the transaction. The applicant himself/herself may not agree with these documents or sections thereof and may not wish to sign them, killing the transaction immediately. Sometimes depending on the items in question and the document, minor accommodations can be made to get it done.

When applying for any finance facility be it a bank or a non-traditional lender this brief description should give the reader a fair understanding of what can go wrong or right with a transaction.