There are situations with factoring in which there is a critical mass of accounts, well over $250,000, where the possibility of shared collateral is sometimes utilized. It requires the absolute full cooperation of two lenders but the possibility exists and has been put to use in many occasions.
The term is called a carve out between two lenders. The first senior lender is usually a bank with a significant line of credit or term loan in place and is using the business assets as collateral. The second lender comes along after the borrower realizes it needs additional working capital to keep the business growing.
The need for having two separate lenders is based on the weakness of the financial condition of the borrower whereby the bank is not interested in furthering their commitment in loan value. Probably the borrower is not really considering the details, they only need more capital to keep going.
To explain what the carve out accomplishes here is a scenario where it would play out; the borrower company owns their own building and has $500,000 of current accounts receivable. The bank has a first position on the real estate and the accounts. A factoring company would propose that an inter-creditor agreement between the bank and the factor would allow the factor to have a first position on a portion of the accounts, for instance $100,000. This would allow the factoring of the first $100,000 of accounts which could give the borrower some badly needed breathing room.
One caveat that is often misinterpreted, the carve would be based on a dollar amount rather than particular customer accounts. Should one of those customers default, the factor would have no method to reclaim its advance. Using a dollar threshold instead gives the factor the ability to collect where needed to get paid off.
This is a highly technical and complex set of negotiations so if you think you might be a candidate for the sharing of accounts, please contact Creative Capital Associates for further consultation to see if the proposed scenario is feasible.