Lockbox Agreement

Summary

This template is a Lockbox Account Agreement used to create a security interest in cash supporting the obligations under a secured financing transaction. This template includes practical guidance, drafting notes, and an alternate clause. Security interests in cash deposits can be perfected through the use of a “lock box.” Under this arrangement, a borrower and a third party agree that payments on contracts entered into by a borrower are paid to a bank account which is in the possession and control of the lender. As long as the loan is not in default, monies are paid from the lock box to the borrower. Once the borrower defaults, the loan funds are paid to the lender and applied against the sums due to repay the loan. Lock box arrangements are common in asset-backed lending facilities as a means to establish cash dominion, in securitizations as part of the cash management and are a key feature in most factoring transactions. For more information on lock box arrangements in secured lending transactions, see Article 9 Sales. For more information on lock box arrangements to establish cash dominion in asset-based lending, see Asset-Based Lending vs. Leveraged Finance. For information on lock boxes as a cash management mechanism in securitizations, see Representing the Borrower in a CMBS Loan. For information on factoring transactions, see Factoring Transactions. For further resources on asset-based lending, see the Asset-Based Lending Resource Kit.