The ABL Due Diligence Checklist: What Borrowers Need to Have Ready Before the Lender Asks

Why Pre-Built Diligence Wins

The ABL closing timeline is not driven by lender speed. It is driven by how fast the borrower returns documents, how cleanly those documents reconcile, and how few follow-up questions they trigger. A borrower who delivers a complete diligence package within 72 hours of the term sheet signing closes a 60-day deal in 60 days. A borrower who responds to requests piecemeal over four weeks turns the same deal into a 90 to 120-day cycle, often missing a peak season, a refinance window, or an acquisition close.

The diligence list is also not a closely held secret. The Office of the Comptroller of the Currency's Accounts Receivable and Inventory Financing handbook describes the standard scope. Lender's counsel issues a closing checklist that is largely consistent across the major ABL desks. Field examiners issue Provided By Client (PBC) lists in advance of fieldwork. The same documents appear over and over.

What follows is the consolidated checklist we run with borrowers when packaging deals for market. The borrowers who walk in with a working data room produce a closing experience that looks effortless. Everyone else negotiates their facility in the margins while chasing documents.

At Don Clarke Enterprises we have packaged and closed hundreds of ABL deals over four decades. Donald Clarke founded Asset Based Lending Consultants in 1986, was inducted into the SFNet Hall of Fame in 2021, and authored Asset Based Lending Disciplines, the first textbook on the discipline. He has trained more than 5,000 lending professionals at GE Capital, JP Morgan Chase, Lloyds, and Barclays. The diligence disciplines covered in his textbook are the same disciplines lenders apply today. We do not consult. We execute.

How the Data Room Should Be Organized

Build a single virtual data room with eight top-level folders. The structure should be readable on day one by lender's credit team, lender's counsel, field examiner, and any participating lenders. Folder hygiene is a proxy for operational hygiene. Sloppy folder structures set a tone for the entire diligence process.

1. Corporate and Organization
2. Financial Statements and Projections
3. Accounts Receivable and Inventory
4. Other Collateral (Equipment, Real Estate, IP)
5. Existing Debt and Liens
6. Material Contracts and Litigation
7. Insurance, Tax, and Environmental
8. Operations and HR

Inside each folder, file with consistent naming: date first (YYYY-MM-DD), document type, version number. Lender's counsel will note which version of each document was reviewed in the closing memo. Version chaos creates closing risk.

Folder 1: Corporate and Organization

• Certified copies of the certificate of formation/incorporation, articles, and all amendments for the borrower and every guarantor entity
• Operating agreement or bylaws, current
• Good standing certificates from the state of formation and every state where the borrower is registered to do business (typically dated within 30 days of closing)
• Authorized signer list with specimen signatures
• Organizational chart showing all entities, percentage ownership, and operating relationships
• Capitalization table
• Board resolutions authorizing the financing (template provided by lender's counsel; signed at closing)
• EIN documentation for each entity
• Beneficial ownership information (FinCEN BOI reporting compliance)

The diligence search work in this folder -- good standing, articles verification, and proper entity-name confirmation for UCC purposes -- is what Cogency Global and Wolters Kluwer describe as the first line of defense for lenders. Errors in the legal entity name on a UCC-1 financing statement can render perfection defective, so this work matters. Borrowers who keep this folder current avoid last-minute scrambles for refreshed certificates from secretary of state offices that take five to ten business days.

Folder 2: Financial Statements and Projections

• Three years of audited or reviewed financial statements (CPA-prepared); five years preferred
• Most recent year-to-date interim financial statements through the most recent month-end
• Monthly trial balance for the trailing 13 months
• Detailed general ledger for the trailing 13 months
• Auditor management letters and management responses for the last three years
• Three-year financial projections by month, including balance sheet, income statement, and cash flow
• Borrowing base projection by month under the proposed facility for the next 18 months
• Detailed breakdown of the allowance for doubtful accounts methodology and current balance
• Inventory valuation methodology (FIFO, weighted average, standard cost), overhead absorption rules, and obsolescence reserve calculation
• EBITDA reconciliation, including all add-backs, with supporting documentation for each material add-back

The credit committee will model the borrower's pro forma availability against the proposed structure. The borrowing base projection -- the one document most borrowers do not produce until lender's counsel asks -- frequently shifts deal economics. The full credit package framework we cover in our credit package guide applies.

Folder 3: Accounts Receivable and Inventory

• AR aging in detail (invoice-level) for the most recent month-end and the last three quarter-ends
• Customer concentration report: top 20 customers as a percentage of total AR, and as a percentage of trailing 12 months revenue
• Trailing 12-month dilution analysis (credit memos, write-offs, volume rebates, disputed adjustments) as a percentage of gross billings
• Ineligibility schedule mapping each of the standard eight ineligibility categories covered in our eligibility guide to the borrower's AR
• Perpetual inventory report as of the most recent month-end, with valuation, location, and aging
• Inventory reconciliation: perpetual to GL, with variance explanation
• Three years of monthly inventory turns by SKU category
• Slow-moving and obsolete inventory schedule (items over 12 months old) with reserve treatment
• Sample invoices, shipping documents, and proof-of-delivery for AR sample testing (typically 30 to 50 invoices selected by examiner)
• Bill-and-hold inventory schedule, if any, with customer authorization documentation
• In-transit and WIP inventory with documentation supporting eligibility treatment
• Last three borrowing base certificates with full supporting calculations and source documents

This folder is the heart of ABL diligence. The mechanics of how to monitor borrowing base data are covered in our borrowing base monitoring guide, and the pre-exam preparation work runs through the same documents. Borrowers should expect the field examiner to spend the largest portion of fieldwork inside this folder.

Folder 4: Other Collateral

Equipment

• Fixed asset register with original cost, accumulated depreciation, net book value, location, and serial numbers where applicable
• Most recent equipment appraisal (if any), with appraiser firm and methodology
• Schedule of equipment subject to existing liens, capital leases, or operating leases
• Schedule of equipment located outside the US

Real Estate

• Description of all owned real property: deeds, surveys, title insurance policies, title opinions
• Mortgage and recorded encumbrance documents
• Real property lease summary for all leased locations (lessor, term, rent, renewal options, assignment provisions)
• Landlord waivers and bailee letters required by lender

Intellectual Property

• List of patents, trademarks, copyrights, and tradenames owned or licensed
• Application filings and registration certificates
• IP search reports and freedom-to-operate analyses, if conducted
• License agreements (in-bound and out-bound)

The treatment of equipment and real estate as collateral often involves split-collateral structures with term lenders, mortgage lenders, or sale-leaseback parties. The intercreditor mechanics for those structures are covered in our intercreditor agreement guide.

Folder 5: Existing Debt and Liens

• Summary of all outstanding indebtedness: lender, principal balance, rate, maturity, security position, financial covenants
• Full copies of every loan agreement, security agreement, and intercreditor agreement currently in effect
• Payoff letters or estoppel letters from lenders being paid off at closing
• UCC search results from the state of formation and every state where collateral is located
• Federal and state tax lien search results
• Judgment search results
• Bankruptcy and litigation searches
• Schedule of UCC-1 filings to be terminated or amended at closing
• Lien release commitments from existing secured creditors

Cogency Global's overview of pre-funding searches covers the UCC, tax lien, judgment, and bankruptcy categories that lender's counsel will pull independently. Borrowers who pull these searches in advance and resolve any unexpected findings -- a stale UCC-1 from a prior factor, a satisfied tax lien still showing as filed -- prevent surprises at closing.

Folder 6: Material Contracts and Litigation

• Top 20 customer contracts
• Top 20 supplier contracts
• Joint venture and partnership agreements
• Distribution and licensing agreements
• Material agreements encumbering real or personal property
• Guarantee or surety commitments by the company
• Schedule of pending or threatened litigation, with status, exposure, and counsel
• Settlement agreements still in performance, if any
• Schedule of contracts requiring change-of-control consent or notice (lender's counsel will need these for the closing checklist)

Folder 7: Insurance, Tax, and Environmental

Insurance

• Certificate of insurance schedule with carrier, policy number, coverage type, limit, and expiration for each policy
• Commercial general liability, property, business interruption, cyber, D&O, and any specialty coverage
• Three-year loss runs from each carrier
• Form lender endorsements (lender as loss payee on property/inventory, additional insured on liability)

Tax

• Federal income tax returns for the last three years (full returns, all schedules)
• State income/franchise tax returns for the last three years for material states
• Most recent quarterly payroll tax filings (Form 941 and state equivalents) and proof of payment
• Sales tax filings and proof of payment for the trailing 12 months
• Property tax bills and proof of payment
• Schedule of any open tax audits, assessments, or disputes

Environmental

• Phase I environmental site assessments for each owned property (lender may order new Phase I if existing is over 12 to 24 months old)
• Phase II assessments and remediation documentation where applicable
• Environmental permits, including air, water, and waste handling
• Underground storage tank registrations and compliance records
• Historical compliance reports and any environmental violations or notices

Folder 8: Operations and HR

• Senior management biographies and length of service
• Employee count by location and function
• Union contracts and collective bargaining agreements, if applicable
• Pension, 401(k), and benefit plan documents
• ERISA compliance documentation (IRS determination letters for qualified plans, Form 5500 filings)
• Severance and change-of-control agreements with senior management
• Schedule of related-party transactions and intercompany agreements
• Description of principal banking and credit relationships (excluding the financing being arranged)
• List of all bank accounts, including operating, lockbox, and disbursement, with bank names and account numbers

The Twelve Items Lender's Counsel Will Ask For Last

Beyond the main folders, lender's counsel will ask for a defined set of items late in the closing process. Borrowers who anticipate them avoid the closing-week scramble:

1. Bring-down good standing certificates (refreshed within 7 to 10 days of closing)
2. Officer's certificate confirming no material adverse change since the last financial delivery
3. Solvency certificate executed by the CFO
4. Updated organizational chart reflecting any pre-closing reorganizations
5. Wire instruction certifications for funding
6. FIRPTA or similar tax certifications, if applicable
7. Authorized signer list update and incumbency certificates
8. Final updated capitalization table
9. Confirmation of insurance endorsements naming the lender
10. Landlord waivers and bailee letters for material inventory locations
11. Pay-off and lien release letters from existing secured creditors
12. Officer's certificate confirming covenant compliance under any debt that survives closing

None of these are exotic. All of them have nominal preparation time on the borrower side. They are also the items most commonly responsible for closing delays of 5 to 14 days at the back end of a deal that otherwise moved on schedule.

The Diligence Mistakes That Cost the Most

From running this process across hundreds of deals, the highest-cost diligence mistakes are consistent:

• Unresolved UCC-1 filings. Old filings from satisfied loans, factors, or equipment lenders that should have been terminated still showing as active. Each one requires a UCC-3 termination filing and follow-up with the original secured party, which can take weeks.
• Stale environmental reports. Phase I assessments over two years old get re-ordered, adding two to four weeks and $5,000 to $20,000 per property.
• Unidentified ineligibility issues. Government receivables without Assignment of Claims compliance, foreign AR without credit support, or material concentration the borrower did not flag. Each issue produces a borrowing base reduction at closing.
• Missing landlord waivers. Inventory or AR books-and-records located at leased premises where landlord waivers have not been negotiated. The waiver negotiation can take three to six weeks depending on landlord cooperativeness.
• Insurance endorsement gaps. Carriers slow to issue endorsements naming the lender. Borrowers who request endorsements at the start of diligence, not at closing, avoid this.
• Tax filings out of compliance. Payroll tax filings or sales tax filings even one quarter behind trigger covenant issues and require remediation before closing.

Why DCE

The ABL diligence list is mechanical, but mechanical is not the same as easy. A first-time borrower running this checklist for the first time, while still running the business, typically discovers gaps that take longer to close than the diligence work itself. An advisor who has run this process across hundreds of deals knows which gaps are common, which are fatal, and which can be resolved in parallel with lender diligence rather than blocking it.

Don's four decades in ABL include the diligence disciplines documented in Asset Based Lending Disciplines, which lender training programs at GE Capital, JP Morgan Chase, Lloyds, and Barclays used to train their own diligence officers. The disciplines have not changed materially. The lender map has, and that is where we add the most value -- knowing which lenders accept which document substitutions, which diligence items are negotiable, and which items will sink a deal at credit committee no matter what.

If you are preparing to go to market for an ABL facility, refinancing into a new lender relationship, or want a diligence readiness assessment before initiating term sheet conversations, we can help.

We do not consult. We execute.