How Should a Lender Check Drawdown Conditions Before Releasing Funds?

TL;DR

• A drawdown-condition check determines whether a specific borrowing request meets the governing agreement’s requirements for a credit extension before funds are released. In the Tuesday Morning credit agreement (opens in a new tab), Section 2.03 addresses borrowing requests and Section 4.02 sets conditions for credit extensions.
• The governing agreement and any waivers control the decision. No certificate, workflow approval, or policy receipt replaces lender judgment on collateral value, defaults, or legal entitlement.
• A borrower certificate states the borrower’s position. A workflow approval records review. Inherence’s proposed integration architecture would evaluate defined actions against committed or attested inputs, but it remains unvalidated for this use.
• This guide follows one funding request. The borrower-risk monitoring guide (opens in a new tab) addresses ongoing monitoring.

The hypothetical draw request

A hypothetical borrower requests a $4 million revolver draw on Wednesday for Friday funding under an assumed $100 million facility. The lender must determine whether the request, available capacity, and draw-time conditions permit that release. The example uses the defined terms in Tuesday Morning’s 2015 credit agreement (opens in a new tab) to illustrate one facility structure. Its percentages, reserve rules, notice requirements, and draw conditions are not a template. The borrower’s own agreement and any applicable waivers govern the decision.

Assume the latest Borrowing Base Certificate reports $10 million in eligible credit card receivables and $60 million in eligible inventory at cost. Applying the agreement’s 90% advance rate to receivables produces $9 million. For illustration, assume the applicable inventory formula permits a 90% advance rate against an Appraised Value equal to 80% of the $60 million inventory figure. That calculation produces $43.2 million, but the lender must verify the agreement’s actual inventory formula and applicable appraisal before using it. After an assumed $2 million Availability Reserve, the Borrowing Base equals $50.2 million.

For this example, assume the applicable Line Cap equals $50.2 million. With $40 million in outstanding Revolver Loans and $5 million in LC Obligations, Availability equals $5.2 million. The requested $4 million would leave $1.2 million of Availability if those figures still apply when the draw is tested. The $5.2 million availability calculation does not authorize release of funds. The lender must check the request and the applicable conditions for a credit extension under its governing agreement.

What the credit agreement requires before funds move

The lender should check the hypothetical draw against the Tuesday Morning credit agreement (opens in a new tab) and any effective waivers. Section 2.03 governs Borrowing Requests, with forms specified in Exhibits C-1 and C-2. A request that follows those mechanics still needs a separate capacity check.

Section 1.01 defines the Borrowing Base using eligible collateral and applicable reserves. The lender should compare the most recent Borrowing Base Certificate with outstanding revolver loans and letter-of-credit obligations when checking Availability. Under Section 1.01, the administrative agent may change the reserve in Permitted Discretion. Before relying on a changed reserve, the lender should confirm which notice, explanation, and exception provisions apply to that change under Section 1.01.

Section 5.12 governs collateral monitoring and reporting, including the certificate used to calculate the Borrowing Base. Section 4.02 separately governs conditions precedent to each credit extension. The lender must check the operative Section 4.02 conditions at the proposed funding time rather than treat a delivered certificate as approval to fund. The lender should identify the representations and default-related conditions that Section 4.02 applies to this credit extension. It should then check the relevant Article III representations and Section 7.01 Events of Default against the available evidence. Section 9.08 governs waiver authority, so the lender must verify any claimed waiver under the agreement rather than infer one from a workflow approval.

The OCC’s asset-based lending handbook (opens in a new tab) provides supervisory guidance for national banks and federal savings associations. It does not set contractual draw conditions for private-credit funds.

Comparing the three forms of evidence

The filed credit agreement (opens in a new tab) requires more than a borrowing request or borrowing-base calculation before a credit extension. Each form of evidence below addresses a different part of that decision.

A borrower certificate records the borrower’s stated figures or representations as of the date it specifies. The borrower supplies the underlying figures and assertions, which may address availability or the absence of a default if the agreement requires them. The certificate covers only its stated representations. The lender can check its delivery, date, signer, and contents, but the certificate alone cannot verify the underlying facts.

A workflow approval records the capital provider’s decision on a submitted request at the time the decision is made. Finley’s documented draw workflow (opens in a new tab) calculates available amounts using credit-agreement terms and servicing-tape data, then routes the request to the capital provider for review. Its history distinguishes a request still under review from one marked approved. The lender can inspect the submitted request, calculated availability, and recorded status for that routed request, but those records do not independently establish the accuracy of every input.

Under Inherence’s proposed integration architecture, a policy evaluation would occur before a specified funding action. Defined rules would evaluate committed or attested inputs for the action routed through the enforcement path. A proposed receipt could provide independently verifiable evidence that the covered action was evaluated against the applicable policy version and committed or attested inputs. The receipt would not establish that external inputs were true or that actions outside the path were checked.

A workflow approval can constrain release only when the funding route requires that approval. A proposed Inherence policy evaluation could block a covered funding action only through a mandatory gate on its execution route. Without the relevant gate, each check informs a decision but does not itself stop release.

Evidence comparison at a glance

For this draw, the agreement and any waivers determine which checks are required. The table shows when each record is created, where its inputs come from, which action it covers, and what the lender can verify.

Proposed Inherence policy evaluation and its limits

Inherence’s draw-time policy evaluation is proposed integration architecture pending validation, not a deployed credit control. For the hypothetical draw, the lender would define the covered action, such as a funding instruction. The lender would also formalize the conditions to check against committed or attested inputs.

A proposed Inherence check could constrain a funding instruction before execution if the lender made a passing result a mandatory gate on that route. Without the gate, the evaluation would inform the lender but would not block release.

A proposed independently verifiable receipt would provide evidence that the covered action was evaluated against the applicable policy version and committed or attested inputs. It would not establish collateral value, legal entitlement, funding, or the truth of every external input. Activity outside the defined enforcement path would remain uncovered. The lender would still check input freshness, authorization, and settlement records.

What stays a lender decision

A borrowing-base calculation cannot settle collateral valuation. In the Tuesday Morning credit agreement (opens in a new tab), an independently engaged appraiser supplies the valuation used for inventory, while the administrative agent may set an Availability Reserve in its Permitted Discretion. Before relying on reported availability, the lender must assess the applicable appraisal and reserve under the governing agreement.

Waivers and defaults require legal and credit judgment. The lender should obtain legal review of whether a claimed waiver covers the requested draw and was granted with the authority required by the agreement. The lender must assess the relevant facts against the agreement’s default provisions and draw-time conditions. A borrower certificate, workflow approval, or policy receipt cannot make those determinations.

FAQs

Does a passed policy evaluation guarantee funding? No. Inherence’s draw-time evaluation remains proposed integration architecture pending validation. A proposed receipt could show evaluation of a covered action against the applicable policy version and committed or attested inputs. It would not establish collateral value, satisfaction of legal conditions, funding, or activity outside the defined enforcement path. The lender must decide whether to release funds under the governing agreement and any waivers.

What is the difference between a borrowing base certificate and a workflow approval? A borrower certifies a borrowing-base calculation using the inputs required by its agreement. A workflow approval records a decision on a submitted request. Finley’s documented workflow (opens in a new tab) calculates availability, routes the request for capital-provider review, and tracks its status. Neither record alone verifies every underlying collateral input.

Does the OCC handbook apply to private-credit funds? No. The OCC’s asset-based lending handbook provides supervisory guidance for national banks and federal savings associations. It does not impose draw conditions on private-credit funds. The fund’s credit agreement and any waivers govern its funding decision.

What happens if inputs are stale at draw time? The lender should obtain current evidence or resolve the stale input before relying on the check. A passed evaluation against an old borrowing base cannot establish current availability. The governing agreement determines what updated reporting or certification the draw requires.

Conclusion

For the hypothetical $4 million request, the lender must confirm the borrowing request, recalculate availability using applicable inputs, and check the draw-time conditions under the governing agreement and any waivers. A certificate supplies borrower assertions, a workflow approval records a decision, and a proposed Inherence receipt could document evaluation of a covered action. The lender retains the collateral, credit, and legal decision.

Lenders evaluating controls for covered funding actions can request access through Inherence (opens in a new tab) to discuss the proposed integration.