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There is a moment in every asset-backed loan when everything is agreed — the collateral is appraised, the term sheet is signed, the commitment letter is out — and then the question shifts from whether the deal happens to how the money actually moves. That moment is where a surprising amount of complexity lives, and where the professionals who build their careers around structured lending earn every dollar of their fee.
This article is a thorough walkthrough of that process: how the loan is sized, how proceeds flow at origination, how repayment obligations are structured between parties, what happens inside each disbursement, and where the mechanics of settlement can create friction — or, with the right infrastructure, deliver certainty.
Worked examples detailed in steps one and four; timelines from the closing sections of this article.
What makes a loan asset-backed in the first place
Asset-based lending (ABL) is when a lender issues a loan that is secured by some form of collateral, such as inventory, accounts receivable, equipment, or real estate, among other business assets. The distinction matters because it changes almost every downstream mechanic — who gets paid, in what order, and what rights attach to the collateral throughout the loan's life.
Asset-based loans work differently from cash-flow corporate loans. They are backed by income-generating hard assets, such as energy infrastructure or leased equipment, or by pools of financial assets such as auto loans and residential mortgages. These assets secure the loan and generate their own cash flows.
ABL literally means asset-based loan, and the foundation of any ABL facility is the assets supporting the borrowing base. Unlike a cash-flow facility, where lenders look to the borrower's future cash flow, availability of the loan in an ABL facility is driven by the quality and value of the "borrowing base assets," typically eligible inventory and eligible receivables — and sometimes eligible equipment.
This is a critical distinction for everyone in the deal. An unsecured lender is betting on the borrower's future income. An asset-backed lender is betting on the current, tangible value of identifiable property. That distinction shapes every step of the process that follows.
Step one: Collateral appraisal and borrowing base determination
Before a dollar changes hands, the lender must establish exactly how much it is willing to advance against the collateral. This is done through the borrowing base calculation.
The borrowing base is the limit placed by a lender on a financing arrangement based on the collateral pledged to secure a line of credit or asset-backed loan. Given the implied borrowing base, the maximum amount of capital that the borrower could draw on the credit facility is established. The borrowing base in an asset-based lending agreement is intended to ease the credit risk burden undertaken by a lender as part of contributing financing to a specific borrower.
A borrowing base is the amount of credit a lender will loan based on the appraised value of the assets they agree to use as security. Typical asset types used as collateral include accounts receivable, inventory, real estate, machinery, and equipment. Generally speaking, no lender will advance 100% of the value of the collateral. Instead, lenders apply an advance rate to determine how much funding the collateral will secure. The advance rate provides the lender with a cushion of protection in case the value of the collateral declines or the borrower defaults and the collateral needs to be liquidated quickly.
To put this in concrete terms: consider a manufacturer in Texas that pledges eligible accounts receivable and inventory. The lender applies an advance rate to each — the loan-to-value ratio is set based on the type and quality of the assets; for instance, accounts receivable may have an LTV of 70–85%, while inventory may be in the range of 50–70% — and the borrowing base might look like this:
| Collateral | Eligible value | Advance rate | Borrowing base |
|---|---|---|---|
| Accounts receivable | $2,500,000 USD (approximately $3,850,000 AUD) | 75% | $1,875,000 USD (~$2,887,500 AUD) |
| Inventory | $1,000,000 USD (~$1,540,000 AUD) | 50% | $500,000 USD (~$770,000 AUD) |
| Total | $3,500,000 USD (~$5,390,000 AUD) | — | $2,375,000 USD (~$3,658,000 AUD) |
That number, not the company's credit score, is what drives loan availability.
Other terms of the loan — such as the interest rate and loan duration — depend on the asset's liquidity, meaning how easily it can be converted into cash in case the borrower defaults on repayment. For highly liquid assets, lending companies typically offer higher funding and lower interest rates.
Once the lender and borrower agree on the borrowing base and the terms, the facility is documented. The borrower and lender agree on the terms, including interest rate, repayment schedule, and covenants — conditions that the borrower must adhere to. These covenants are not boilerplate. In an asset-backed facility, they are operationally meaningful obligations that govern the entire loan lifecycle.
Step two: The cast of parties at origination
This is where the work of structured lending professionals becomes visible. An asset-backed loan does not close with just a borrower and a lender. The table is populated with a range of parties, each with a specific function and a specific claim on the proceeds.
The lender provides the capital and holds the security interest. The loan agreement typically contains affirmative covenants requiring the borrower to preserve collateral, maintain insurance, pay taxes, and refrain from selling or pledging assets without lender consent.
The settlement agent or closing attorney coordinates the transaction from documentation to disbursement. A closing agent or settlement agent is the entity or individual who oversees the closing process, including making sure the title is clear and all the money is collected, verified, and disbursed in accordance with the terms of the contract and loan documents. In the eastern United States, an attorney typically serves as the settlement agent. In the western states, the settlement agent is typically an escrow company or title company — the company that provides the title report and title insurance.
The title company or escrow officer manages the disbursement sequence. It is the escrow officer, or an attorney where required by law, who is responsible for final disbursement accuracy. During the preliminary closing and title process, the closing team identifies certain items that must be paid based on title requirements, such as liens, homeowner's association dues, and outside vendors that are owed. When the research and fact-finding phase is complete, the escrow officer audits the file and prepares the final settlement statement.
Brokers and originators, where present, have earned a placement fee that must be disbursed at closing as part of the overall settlement. The closing agent must transfer payment to the seller, distribute commissions to real estate agents, and disburse all fees and payments to all third parties involved in the transaction.
The title company disburses funds after closing by following a specific sequence of payments dictated by the settlement statement and the terms of the purchase contract. The disbursement is not a single lump-sum payment to any one party. The title company pays multiple parties from the account in a defined order.
Step three: How the loan is funded at closing
Loan funding is a choreographed event. "Loan funds" means the gross or net proceeds of the loan to be disbursed by the lender at loan closing. "Settlement" means the time when the settlement agent has received the duly executed deed, loan funds, loan documents, and other documents and funds required to carry out the terms of the contract between the parties, and the settlement agent reasonably determines that prerecordation conditions have been satisfied.
In practical terms: the lender wires the approved loan proceeds to the settlement agent or title company. The lender reviews all the documents and transfers the loan amount to the title company, which then oversees the transfer of ownership and disbursement of funds at closing per the state's regulations.
The closing or settlement agent is then responsible for collecting the money from the parties and disbursing it according to the terms of the sales contract and the loan.
This is where the settlement statement becomes the operating document. The remaining net proceeds are disbursed to the seller via wire transfer or cashier's check. Each payment is itemized on the Closing Disclosure or settlement statement, which the buyer and seller review and sign at closing. The title company follows this document exactly when distributing funds.
Two funding models exist, and they have material consequences for when each party actually receives their money:
Wet funding — by far the most common type of closing transaction, required in most states — occurs when all the paperwork needed to officially close on a real estate transaction, including payment of funds, is completed at the same time. In wet funding jurisdictions, the buyer's lender provides the money at or before closing, allowing the title company to begin disbursing funds as soon as the documents are signed and conditions are met. In these cases, sellers may receive their proceeds the same day or the next business day, depending on how quickly the transaction is recorded and wire transfers are processed.
Dry funding means funds are not released until after all documents are signed, reviewed, and sometimes re-approved by the lender. This method is more common in states with stricter funding requirements. With dry funding, the title company must wait for lender approval and possibly recording confirmation before sending any funds out.
Step four: The disbursement waterfall at closing
With loan proceeds in the settlement account and all documents signed, disbursement follows a defined priority sequence. The settlement statement is not a suggestion; it is the controlling document, and each party is paid according to their position within it.
Once all the documents are signed and the buyer's funds are received, the closing agent handles the disbursement of those funds. That means they send payments to pay off the seller's existing mortgage if there is one, cover closing costs, and ensure agents and other service providers are paid. Only after all these obligations are met does the closing agent issue the remaining proceeds to the seller or borrower.
In a commercial asset-backed loan, this waterfall typically runs in the following order:
- Existing lien payoffsAny prior security interests on the collateral must be extinguished to give the new lender a clean first-lien position.
- Recording and government feesThe deed of trust, UCC filings, or other security instruments must be properly recorded.
- Title insurance premiumsBoth lender's and owner's policies, where applicable.
- Settlement agent and closing attorney feesThe professionals who orchestrated the transaction.
- Broker and originator feesPlacement fees earned by the parties who structured and sourced the deal.
- Net proceeds to the borrowerThe remaining loan amount after all obligations are satisfied.
For investment purchases and commercial closings, the disbursement may involve additional parties such as property managers, second lien holders, or partnership entities, which can add complexity and time to the distribution process.
Consider a concrete scenario. A commercial property owner in Nevada pledges a $5,000,000 USD (~$7,700,000 AUD) warehouse as collateral for a bridge loan. The lender advances 65% LTV, and at closing the title company must pay each party out of those proceeds:
| Item | USD | AUD |
|---|---|---|
| Loan advanced by the lender | $3,250,000 | ~$5,005,000 |
| Payoff of existing first mortgage | −$1,800,000 | ~$2,772,000 |
| Broker origination fees | −$45,000 | ~$69,300 |
| Title and settlement charges | −$12,000 | ~$18,480 |
| Recording costs | −$8,000 | ~$12,320 |
| Net loan proceeds to the borrower | $1,385,000 | ~$2,132,900 |
The borrower receives the balance as net loan proceeds available for their intended use.
Each of those payments must clear independently. Each creates its own confirmation, its own potential delay, and its own reconciliation requirement for the settlement agent.
Step five: Ongoing obligations — monitoring, covenants, and the borrowing base through the loan term
Funding is not the end of the lender's involvement. Unlike a fixed-rate mortgage where the lender funds once and waits for scheduled payments, an asset-backed facility requires active management throughout its life.
The heart and soul of ABL lending is the collateral; thus, ABL credit agreements often provide for intense lender monitoring and supervision because the borrowing base is tied to "eligible" assets.
The lender periodically reviews the collateral to ensure it maintains its value and complies with the terms of the loan. This may involve audits and regular financial reporting from the borrower. If the value of the collateral fluctuates, the borrowing base may be adjusted. For instance, if the company's inventory value decreases, the lender might reduce the amount of available credit.
Corporate borrowers in an asset-based lending facility must maintain accurate accounting records, provide timely financial statements, and allow lender inspections and audits.
Fluctuating collateral values mean the value of collateral can shift with market conditions, potentially causing the borrower's borrowing capacity to decrease or loan terms to change. Borrowers may also face additional reporting requirements and expenses, with lenders closely monitoring the value of the collateral throughout the loan term.
This ongoing surveillance obligation is one of the operational realities that makes ABL more intensive than conventional term lending — for the lender's credit and monitoring team, and for the borrower's finance staff who must support that process with accurate and timely data.
Step six: Repayment mechanics between parties
The self-amortizing nature of asset-backed loans means that they repay their principal gradually over time, becoming less risky as they do. That is distinct from the way corporate loans work: they pay income over time but do not repay any principal until the end of the loan term.
The structure of repayment can vary, but typically includes regular payments of interest with a principal repayment schedule, or a revolving structure where the credit line is replenished as the borrower repays the borrowed amount.
For a revolving ABL — the most common commercial structure — the facility allows the borrower to draw funds, repay draws, and redraw funds over the life of the loan.
For a term loan against hard assets — real estate, equipment, or a concentrated pool of receivables — the repayment schedule is fixed at origination. The borrower makes scheduled principal and interest payments to the lender according to an amortization table. If the loan includes a balloon payment structure, the majority of principal is retired in a lump sum at maturity.
Asset-backed loans often come with more flexible repayment terms compared to other types of loans. Lenders understand that borrowers may experience fluctuations in cash flow or face unforeseen circumstances, and therefore may be willing to negotiate repayment schedules that align with the borrower's needs.
Repayment events can themselves trigger multi-party disbursements. In a syndicated ABL where multiple lenders hold participations in the facility, each scheduled payment from the borrower must be received by the administrative agent and then distributed pro rata to each participant lender according to their share of the facility. This creates a second disbursement waterfall — this time running from the borrower outward to a roster of institutional lenders, each expecting to receive their precise allocation on schedule.
Step seven: Default and enforcement
No article on ABL mechanics is complete without an honest discussion of what happens when the borrower fails to perform.
Once a borrower defaults on payment, reporting covenants, or asset maintenance obligations, the lender may exercise remedies ranging from acceleration of the full loan balance to foreclosure and sale of the collateral. Enforcement of a security interest begins with the loan agreement's default clause.
Many loan agreements grant the lender the right to take possession of collateral without judicial process, though courts in some jurisdictions impose a duty to act reasonably and without breach of peace.
Although business people sometimes try to distinguish between "technical" and "real" defaults, any event of default — from a late notice to a breach of a financial covenant — gives rise to a lender's rights and remedies under the contract.
In enforcement scenarios, the settlement agent or closing attorney re-enters the picture. A trustee's sale, a foreclosure auction, or a structured disposition of the collateral asset all require professional coordination of proceeds — again, to a waterfall of claimants in priority order. The lender's principal balance is retired first; junior lien holders follow; the borrower receives whatever surplus, if any, remains.
The complexity of default enforcement underscores something important: the parties in an ABL transaction are bound together not just at origination but for the full life of the facility. Every disbursement event — initial funding, periodic interest settlements, principal paydowns, prepayments, and ultimately the final payoff or enforcement — requires precision distribution to a defined roster of parties.
The settlement problem that every professional in this chain knows
If you have worked as a settlement agent, a closing attorney, an escrow officer, a broker, or an administrative agent for a syndicated ABL, you have lived the operational reality of multi-party disbursement under time pressure.
Loan proceeds arrive from the lender. The settlement statement dictates where every dollar must go. But each downstream payment is its own wire: one to retire the first mortgage, one to the originating broker, one to the title company, one to the borrower. Each wire has its own confirmation timeline. Each bank cut-off time is its own risk. Traditional financial infrastructures settle transactions only within narrow windows — weekdays and business hours, excluding holidays and planned downtime. These constraints extend settlement timelines and introduce liquidity and credit frictions across markets.
From a business perspective, settlement speed directly impacts working capital and operational efficiency. When a broker is waiting for a fee wire to hit before noon on a Friday, or when a syndicate participant is expecting a pro-rata principal payment that is delayed because one bank's correspondent is slow, the friction is real and the consequences are measurable.
In traditional finance, settlement can take days as clearinghouses verify transactions across centralized ledgers. Even when the loan is structured perfectly and all parties have agreed on amounts, the mechanics of moving money to multiple recipients simultaneously remains a sequential, error-prone process.
How onchain routing changes the disbursement layer
This is where infrastructure built for exactly this problem becomes relevant.
shaka.deal is a B2B onchain payment router on Ethereum. The way it works is direct: a single incoming payment hits the router, and the router instantly distributes it to every party at preset percentage shares — in one transaction, with onchain finality. The router does not hold funds; it routes them. Settlement agents, escrow officers, and closing attorneys define the split; shaka.deal executes it the moment funds arrive.
For the disbursement waterfall described above — lender payoff, broker fee, title charges, net proceeds to borrower — the distribution table is set before the transaction executes. When the incoming loan proceeds arrive onchain, each party receives their allocation simultaneously. There is no sequencing. There is no second wire. There is no waiting on correspondent banks.
Atomic settlement enforces simultaneous, conditional exchange: either both sides of a transaction execute, or neither does. In the context of a loan disbursement, this means the broker does not receive their fee while the title company waits two days for theirs, and the borrower does not receive net proceeds while the lender payoff wire is still in transit. Every party settles at the same moment, from the same transaction.
Onchain settlement is also permanent. Settlement plays a key role in reducing counterparty risk and ensuring payment finality. Once a transaction is settled, ownership is transferred and the transaction is irreversible. This eliminates ambiguity and reinforces trust between parties. There is no revisiting the ledger. There is no dispute about whether a payment posted before or after a cut-off. The record is on-chain, timestamped, and available to every party for reconciliation without a call to the settlement agent.
Onchain settlement can be near-instant and always available, eliminating cut-off risks and weekend delays. For a commercial ABL closing that falls on a Thursday afternoon — a timeline that in traditional wire infrastructure could push disbursement to the following Monday — onchain routing removes that constraint entirely.
For syndicated ABL structures where the administrative agent must distribute repayment proceeds pro rata to a roster of lender participants, shaka.deal handles that distribution in the same way: one incoming payment, preset shares for each participant, simultaneous payout. The agent does not need to manage four or eight sequential wires. The participants do not need to follow up on their allocation. The split executes as specified, and the record confirms it.
None of this replaces the professionals who structure these transactions, verify the documents, confirm title, and determine the settlement statement amounts. The escrow officer still prepares the HUD. The closing attorney still certifies the lien position. The broker still earns the fee. shaka.deal's role begins the moment those amounts are agreed — routing the payment to each of them instantly and with certainty.
Why the professionals in this chain should care
Settlement agents and closing attorneys have managed multi-party disbursements for decades using wire infrastructure that was built for a different era. The process works — but it works slowly, sequentially, and with meaningful operational overhead at each step.
Between information verification, credit scoring, loan processing, and distribution of funds, it takes 30 to 60 days for individuals to secure a mortgage, and 60 to 90 days for small or medium enterprises to secure a business loan. Blockchain can streamline banking and lending services, reducing counterparty risk and decreasing issuance and settlement times.
The loan origination timeline is largely a function of underwriting and documentation. Disbursement, by contrast, should take seconds. When a deal is fully negotiated, the settlement statement is signed, and all parties have agreed on exactly who receives what — the act of moving money should not introduce a multi-day tail risk.
For settlement agents, the operational benefit is clear: one outgoing transaction replaces a sequence of individual wires. Reconciliation is instant and unambiguous. The settlement statement and the on-chain record match to the dollar.
For brokers and originators, the benefit is certainty of receipt. A fee that is coded into the split executes when the deal closes — not two business days later, not pending a second wire instruction.
For borrowers, the speed of net proceeds matters. In bridge lending and working capital ABL, borrowers are often funding a specific operational need. A delay in receiving net loan proceeds is not an abstraction — it is a missed payroll, a delayed inventory purchase, or a lost opportunity.
For lenders, the payoff confirmation is immediate. When a prior lien is retired onchain, the lender does not need to wait for a recorded release to confirm that funds were received. The transaction hash is the confirmation.
Putting it together: The full lifecycle in summary
An asset-backed loan travels through a well-defined sequence of events, each involving a different set of parties, obligations, and fund movements:
- Origination and borrowing base determination — the lender establishes how much it will advance against the eligible collateral, applying advance rates to arrive at a borrowing base.
- Documentation and covenant setting — the loan agreement is executed, specifying the repayment schedule, covenants, and rights of each party.
- Closing coordination — the settlement agent or closing attorney assembles the closing package, resolves title conditions, and prepares the settlement statement.
- Loan funding — the lender transfers gross loan proceeds to the settlement agent.
- Disbursement waterfall — the settlement agent distributes proceeds to each party in defined priority order: lien payoffs, fees, charges, and net proceeds to the borrower.
- Ongoing monitoring — the lender audits the collateral base, the borrower reports eligible assets, and the borrowing base is recalculated periodically.
- Repayment events — scheduled principal and interest payments flow back to the lender; in syndicated structures, the administrative agent distributes pro-rata to each participant.
- Final payoff — the loan is retired, liens are released, and the borrower's collateral is returned to unencumbered status.
At every disbursement point in that lifecycle — steps 5 and 7 in particular — the question is the same: how do we ensure that every party receives exactly what they are owed, simultaneously, with a record that requires no follow-up?
shaka.deal is built to answer that question. One payment in. Preset shares out. Every party settled in the same block, with finality that is immediate and permanent.
The professionals who manage these transactions — the settlement agents, the escrow officers, the closing attorneys, the administrative agents for syndicated facilities — are the people who define those shares. Their expertise is in structuring the deal correctly. shaka.deal's role is to execute the payment with the speed and certainty that their clients deserve.
That is the full picture of how an asset-backed loan is funded and repaid between parties — and where the infrastructure of settlement is finally catching up to the sophistication of the deals themselves.
