Businesses in the automotive industry often rely on a mix of real property, inventory, and equipment to operate, making asset-based lending a natural fit for financing that needs to be secured against the full range of assets the business holds. When a borrower in the automotive industry sought to secure an $8.5 million asset-based lending facility, the transaction included an element that many standard asset-based deals do not: real property mortgages as part of the collateral package.
Members of Mandelbaum Barrett PC’s Banking and Finance Group, including partner Jeffrey M. Rosenthal and associates Ann S. Lee and Ava D. Goldberger, together with Environmental Law Group partner Douglas I. Eilender, represented the borrower in closing the $8.5 million facility. The team’s ability to bring together banking, finance, and environmental legal capabilities in a single matter reflects the firm’s Banking and Finance Practice Group’s approach to complex commercial lending transactions.
What Is Asset-Based Lending?
Asset-based lending is a form of commercial financing in which the loan is secured by specific assets of the borrower rather than, or in addition to, the borrower’s general creditworthiness. The most common collateral in asset-based facilities includes accounts receivable, inventory, and equipment. The borrowing base, which determines how much the borrower can draw at any given time, is typically calculated as a percentage of eligible accounts receivable and inventory values.
For businesses in asset-intensive industries like automotive, asset-based lending can provide access to flexible working capital that grows with the business as its asset base expands. The structure gives lenders a defined security interest in specific collateral while providing borrowers with revolving access to capital tied to the value of the assets that drive their operations.
The Role of Real Property Collateral
The inclusion of mortgages on real property as part of an asset-based lending facility adds complexity that not all commercial lending transactions involve. Real property collateral requires title examination, survey review, environmental due diligence, and the execution of mortgage documents that must be recorded in the county where the property is located. The legal requirements for perfecting a mortgage lien are entirely separate from those for perfecting security interests in personal property under the Uniform Commercial Code.
When real property is included alongside traditional asset-based collateral, the legal team must coordinate across both the UCC and real property dimensions of the transaction, ensuring all security interests are properly documented, perfected, and integrated into the overall facility structure. That is where the involvement of environmental counsel alongside banking and finance attorneys becomes particularly valuable.
Environmental Considerations in Commercial Lending
The inclusion of real property as collateral in a commercial loan transaction typically triggers environmental due diligence requirements. Lenders taking a mortgage on real property need assurance that the property does not carry environmental liabilities that could affect its value or the lender’s ability to realize on the collateral in the event of a default.
For automotive industry borrowers, environmental due diligence takes on added significance given the potential for soil or groundwater contamination associated with fuels, lubricants, and other materials used in automotive operations. Douglas I. Eilender and the Environmental Law Group at Mandelbaum Barrett PC bring the environmental legal knowledge required to advise on these issues in the context of a commercial lending transaction, ensuring the collateral package is properly supported by appropriate environmental review.
Asset-Based Lending at Mandelbaum Barrett PC
Mandelbaum Barrett PC’s Banking and Finance Practice Group has experience representing both lenders and borrowers in asset-based lending facilities across a range of industries and transaction structures. Jeffrey M. Rosenthal and the group’s attorneys understand the legal requirements for properly structuring, documenting, and closing these facilities, including those with non-standard collateral elements like real property mortgages.
The group’s ability to coordinate with the firm’s Environmental Law Practice Group on transactions where environmental issues are relevant gives clients and lenders access to a broader range of legal support within a single firm. To speak with a member of Mandelbaum Barrett PC’s Banking and Finance Practice Group about an asset-based lending matter or other commercial financing need, contact the firm through the contact page. Our attorneys are prepared to assist with commercial lending transactions throughout New Jersey and beyond.
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