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Block Discounting
Block Discounting is a versatile financing option where Conister Bank acquires the rights to receivables from finance agreements with the Borrower (Block Customer), providing immediate access to capital.
Financial Flexibility: Mastering the Mechanics of Block Discounting
The cover ratio (minimum 125%) is calculated using the average Internal Rate of Return (IRR) of the gross receivables divided by the Purchase Price/Advance Rate. It’s a measure to ensure the loan is adequately covered by the underlying assigned receivables.
The advance rate, typically between 70-95%, is based on factors such as dilution (arrears, defaults, and write-offs) and concentration (maximum single exposures). It determines the percentage of funds the Borrower receives against the assigned receivables.
Conister Bank will also expect to take a floating charge over the Borrower’s assets. On each drawdown underlying assets will be secured and assigned to Conister Bank through a deed of assignment.
Capital and interest repayments are structured to match the average repayment profile of the agreements purchased (up to a maximum of 7 years).
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FAQs
What is Block Discounting?
Block Discounting is a financial solution in which a finance company, like Conister Bank, buys the rights to the receivables from finance agreements held by the Borrower. This arrangement allows the borrower to access capital immediately while retaining the management of customer relationships and contracts. This type of financing is beneficial for businesses that require liquidity but wish to continue managing their customer interactions and servicing the original agreements
What happens if a Block Discounting Facility goes into default?
If default happens, the Borrower has the option to substitute the defaulted agreement with additional receivables (unencumbered assets), which are then transferred to Conister Bank. This arrangement allows for the maintenance of agreed-upon covenants and the security of the Facility.
What is the cover ratio in Block Discounting and how is it monitored?
The cover ratio, which ranges from 105% to 215%, is calculated by dividing the average Internal Rate of Return (IRR) of the gross receivables by the Purchase Price/Advance Rate. This ratio serves as a measure to ensure that the Facility is adequately secured by the Borrower's assets.
What are the costs involved with a Block Discounting Facility?
Costs include pre-lend audit fees, legal fees, and an arrangement fee of 1% of the facility upon signing the agreement. Costs vary based on the product lifecycle and company’s performance and are negotiated during the onboarding process.