Collateral audits based on Monthly Recurring Revenue (“MRR”) are quickly increasing in frequency in the Asset Based Lending Industry as result of the boom in the Software as a Service (“SaaS”) sector.
These credit facilities are based on a percentage of a business’s revenue rather than traditional accounts receivable collateral. In this type of situation, loans are designed for SaaS and other sticky, high margin, subscription revenue companies, providing lenders with an opportunity to accelerate growth and expand sales while eliminating, or postponing, the need for higher cost equity.
Revenue Churn & MRR Based Loans
A Company’s revenue churn is a measure of the lost revenue over a specific period of time, and the calculation of churn can vary Bank from Bank and audit to audit. The churn ratio can be based on monthly, quarterly, or annual calculations and can be comprised on lost revenue only or lost revenue net of revenue expansions and/or new revenue growth.
MRR based loans pose specific unique risk as compared to traditional accounts receivable based loans. The additional risk related to the Company’s revenue churn as well as the supporting documentation available for the review, testing, and reconciliation of the reported MRR collateral.
For a copy of our MMR brochure, please click here.
The supporting documentation typically available to verify the accuracy of the reported MRR collateral will included contracts, Statements of Work, amendments, purchase orders, or subscription usage reports.
The Verification Process
In order to verify the MRR collateral an in depth review of the underlining support is required to ensure the billing rates, terms, period of service, and renewal options all align with the amount and how the Company is reported the MRR to the Bank.
Why Choose Dopkins?
With a collective performance of over 250 MRR based collateral audits during their Asset Based Lending Consulting careers, the Dopkins ABL team has become a national leader in providing MRR based collateral audit services.
Regardless of whether the audit is performed on site or via a remote/desktop basis, or is representative of an initial or recurring collateral audit, we are able to effectively and efficiently perform a thorough and complete collateral audit review designed to highlight the potential risk factors and overall analytical positions of any borrower.
Due to the specific risk and testing procedures related to MRR collateral audits, Dopkins has also created an internal audit template designed for MRR collateral audits. The review can be customized to represent a full complete collateral audit review, or can be trimmed down to the specific review requirements in order to help reduce the overall cost of the audit.