Intercompany Receivables

Last Updated: Jun 7, 2019

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Receivable from an affiliate. An affiliate is a company that is associated with, or effectively controlled by, our Borrower. The affiliation may be through direct ownership, common ownership, interlocking or overlapping directorship or management, or even a family relationship.  Accounts receivable arising from transactions with affiliates (or employees of the Borrower) are considered ineligible due to the close relationship that they have with our Borrower.  These are not “arm’s length” transactions and therefore present several risks for the lender, the most serious of which is the opportunity to manipulate the receivable.  For example, the Borrower and its affiliate may agree to create a receivable even though a true sale has not occurred.  Merchandise may even be shipped to the affiliate, but on an informal consignment basis, or with the intent that it will be returned at a later date.  A Borrower may even forgive a receivable from an affiliate as a means of transferring capital.  In this case, no cash will be received to apply against the loan.  Because these receivables can be manipulated, they are considered ineligible.