Lending · Private Credit
Borrower Diligence and Use of Proceeds
The collateral secures the loan. The borrower still matters.
A well-collateralized facility does not depend on the borrower for repayment, but the borrower still determines how often the collateral is tested, how the relationship behaves under stress, and what reputational and regulatory exposure the lender takes on. Borrower diligence is therefore part of every facility, even where the collateral alone would cover the loan.
Who borrows
Trading firms financing inventory or positions; funds and treasuries seeking liquidity against long-term holdings without selling; protocol foundations and companies with digital asset balance sheets; and, through structured arrangements, other lenders. Borrowers are entities with identifiable principals, audited or otherwise verifiable financials, and a legitimate purpose for the loan.
What is reviewed
Legal identity and ownership; sanctions, anti-money-laundering and source-of-funds checks; financial condition and existing indebtedness; the origin of the collateral and its on-chain history; regulatory status where the borrower is a regulated entity; and the borrower’s operational capacity to meet a margin call quickly. A borrower who cannot demonstrate the ability to top up collateral within the cure period is offered a lower ratio or a shorter cure.
Use of proceeds
The purpose of the loan is documented and, where appropriate, restricted. Proceeds used to lever the same collateral, to fund activity in a jurisdiction the lender cannot serve, or for a purpose that would create regulatory exposure for the lender are declined. Use of proceeds also informs the collateral view: a borrower financing a hedged position behaves differently under stress from one financing a directional one.
Through the term
Borrower diligence is refreshed on a schedule and on any material event: a change of control, a regulatory action, a public incident. Facilities include information covenants so the lender learns of these from the borrower rather than the press.
Practice
How Wesvel approaches it
- 01Every borrower passes identity, sanctions, source-of-funds and financial review before terms are offered.
- 02Operational capacity to meet a margin call is tested and informs the ratio and cure period offered.
- 03Use of proceeds is documented and restricted where it would increase collateral or regulatory risk.
- 04Information covenants and scheduled reviews keep the borrower file current through the term.
More in Lending
- How a Facility WorksThe anatomy of a collateralized digital asset loan: borrower, collateral, custody, term and the controls between them.
- Collateral and Loan-to-ValueWhich assets qualify as collateral, how loan-to-value is set from their liquidity and volatility, and why the haircut is the whole loan.
- Margin Calls and LiquidationThe thresholds, cure periods and liquidation rules that protect a facility when collateral falls, and how they differ from on-chain liquidation.
- Custody and Triparty ControlWhy collateral sits with an independent custodian under a control agreement, and how instruction rights work through the life of the loan.
- Documentation and RecourseThe facility agreement, security and control documents, and what a lender can and cannot do when things go wrong.
- Receivables FinancingAdvancing against accounts receivable, whether by purchase or by loan: eligibility, verification, dilution, concentration and collections.
- Private Credit FacilitiesSenior secured and unitranche facilities to operating companies: security, covenants, monitoring and the role of the sponsor.
- Warehouse Lines of CreditRevolving facilities to lenders and originators, secured on the loans they make: borrowing base, eligibility, bankruptcy-remote structure and takeout.
- Asset-Based LendingRevolving and term credit secured on inventory, equipment and mixed collateral pools, governed by a borrowing base and field examination.
- Structured and Other DebtBridge loans, revenue-based financing, participations, forward-flow agreements and structured notes: the products used where a term loan or a borrowing base is the wrong shape.
- Underwriting and ServicingThe credit process behind every non-digital facility: analysis, approval, documentation, monitoring, servicing and workout.
- Short-Duration Business CreditShort-duration revenue-based credit exposure to operating businesses, and how the mandate underwrites and sizes it.
- Equipment FinancingLoans and leases for vehicles, machinery, medical and technology equipment, secured on the equipment itself, plus sale-leaseback of assets a business already owns.