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Key Facts
- New York state level: Asset-based lending commonly uses business assets such as accounts receivable, inventory, or equipment as collateral for credit.
- New York state level: Under New York UCC section 9-203, an enforceable security interest generally requires value, debtor rights in the collateral, and an authenticated security agreement or another permitted basis.
- New York state level: New York UCC section 9-310 generally requires filing to perfect a security interest, subject to statutory exceptions.
- New York state level: New York’s commercial-financing disclosure framework expressly addresses general asset-based financing and can require standardized disclosures for covered offers.
- New York state level: After default, a secured party’s disposition of collateral must be commercially reasonable under New York UCC section 9-610.
Asset-based lending is business financing supported by identified collateral. The lender focuses on the value and collectibility of assets as well as the borrower’s ability to perform the credit agreement.
How an asset-based facility works
A revolving facility often permits advances up to a borrowing base calculated from eligible receivables and inventory. The agreement may exclude overdue receivables, concentrated customer balances, obsolete inventory, or assets subject to competing claims.
The available amount can rise or fall as collateral changes. Borrowing-base certificates, aging reports, inventory reports, field examinations, and account controls allow the lender to test the figures supporting advances.
Equipment can support a term loan or part of a mixed collateral package. The advance rate and valuation method depend on liquidity, depreciation, location, condition, and expected recovery costs.
Attachment makes the security interest enforceable
New York UCC section 9-203 provides the core attachment rule. Value must be given, the debtor must have rights in the collateral or power to transfer rights, and the statute’s record, possession, or control requirement must be satisfied.
The signed security agreement must provide a description of the collateral when the lender relies on the agreement rather than a permitted possession or control route.
Perfection and priority are separate from attachment
Attachment concerns enforceability against the debtor; perfection helps determine effectiveness against competing claimants. New York UCC section 9-310 states the general rule that a financing statement must be filed to perfect, while listing transactions perfected another way.
Deposit accounts as original collateral ordinarily use control rather than filing, while other collateral categories have their own rules.
New York requires disclosures for covered commercial financing
New York Financial Services Law Article 8 defines commercial financing broadly and establishes disclosure duties for covered transactions. DFS states that the framework reaches certain offers up to $2.5 million and includes general asset-based financing.
Part 600 contains formatting and calculation rules for asset-based lending disclosures, including assumptions, financing amount, finance charge, annual percentage rate, term, payment amounts, prepayment information, and collateral requirements where applicable. Statutory exemptions and transaction-specific definitions determine coverage.
Before authorizing the recipient to proceed further with the application, the provider must obtain the recipient’s signature on the disclosures required by Article 8.
Default changes control of collateral
The agreement defines events of default and the borrower’s collateral-reporting and covenant obligations. Contract wording and enforceability remain important; the broader framework is explained in contract law and written agreements.
After default, New York UCC section 9-610 permits disposition of collateral and requires every aspect of the disposition to be commercially reasonable.
Sources
- OCC Comptroller’s Handbook: Asset-Based Lending
- New York UCC Section 9-203
- New York UCC Section 9-310
- New York UCC Section 9-610
- New York Financial Services Law Section 801
- New York Financial Services Law Article 8
- New York Financial Services Law Section 809
- New York DFS Part 600 Commercial Financing Disclosure Regulation
- New York DFS Commercial Financing Disclosure Overview
