Non-Notification Loan

AAA

DEFINITION of 'Non-Notification Loan'

A full-recourse loan that is securitized by accounts receivable (AR). Customers making accounts-receivable payments are not notified that their account/payment is being used as collateral for a loan. They continue making payments to the company that rendered services or made the original loan, and the company then uses those payments to repay their lender for financing obtained. Non-notification loans do not transfer the risk to the third party. If the AR payments are not made by the customers, the company is still liable for repaying the loan it obtained using the AR as security.

INVESTOPEDIA EXPLAINS 'Non-Notification Loan'

Commercial banks and finance companies are the primary originators of non-notification loans. They began providing the service to commercial clients in the early 20th century because the Federal Reserve would not buy notes backed by AR. Today non-notification loans can be attractive for the financing company because they do not assume any credit risk on the receivables sold or assigned.

RELATED TERMS
  1. Full Recourse Debt

    A guarantee that no matter what happens, the borrower will repay ...
  2. Debt

    An amount of money borrowed by one party from another. Many corporations/individuals ...
  3. Credit

    1. A contractual agreement in which a borrower receives something ...
  4. Accounts Receivable - AR

    Money owed by customers (individuals or corporations) to another ...
  5. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  6. Asset

    1. A resource with economic value that an individual, corporation ...
RELATED FAQS
  1. How does investment banking differ from commercial banking?

    Investment banking and commercial banking are two primary segments of the banking industry. Investment banks facilitate the ... Read Full Answer >>
  2. Why do commercial banks borrow from the Federal Reserve?

    Commercial banks borrow from the Federal Reserve primarily to meet reserve requirements when their cash on hand is low before ... Read Full Answer >>
  3. What role does a correspondent bank play in an international transaction?

    A correspondent bank is most typically used in international buy, sell or money transfer transactions to facilitate foreign ... Read Full Answer >>
  4. What is the difference between accrued revenue and accrued interest?

    The difference between accrued revenue and accrued interest is that the former represents accumulated income that has not ... Read Full Answer >>
  5. In what instances does a business use closed end credit?

    The most common types of closed-end credit used by both businesses and individuals are mortgages and auto loans. Businesses ... Read Full Answer >>
  6. What is the difference between a correspondent bank and intermediary bank?

    Correspondent and intermediary banks serve as third-party banks that coordinate with beneficiary banks to facilitate international ... Read Full Answer >>
Related Articles
  1. Fundamental Analysis

    Measuring Company Efficiency

    Three useful indicators for measuring a retail company's efficiency are its inventory turnaround times, its receivables and its collection period.
  2. Investing Basics

    Understanding The Cash Conversion Cycle

    Find out how a simple calculation can help you uncover the most efficient companies.
  3. Investing Basics

    How And Why Do Companies Pay Dividends?

    If a company decides to pay dividends, it will choose one of three approaches: residual, stability or hybrid policies. Which a company chooses can determine how profitable its dividend payments ...
  4. Entrepreneurship

    Small Business: Speed Up Receivables To Avoid A Cash Crunch

    Waiting for customers to pay can be a losing game. Look to factoring for quicker cash.
  5. Fundamental Analysis

    Analyzing Retail Stocks

    To analyze retail stocks, investors need to be aware of the most common metrics used. Find out what they are.
  6. Bonds & Fixed Income

    5 Signs Of A Credit Crisis

    These indicators can illuminate the depth and severity of problems in the credit markets.
  7. Markets

    What Is A Cash Flow Statement?

    Learn how the CFS relates to the balance sheet and income statement as a part of a company's financial reports.
  8. Bonds & Fixed Income

    Distressed Debt An Avenue To Profit In Corporate Bankruptcy

    Use debt securities to attack bankrupt companies and scavenge them for profits.
  9. Entrepreneurship

    The Impact Of Recession On Businesses

    Find out how this economic cycle affects both small and big business.
  10. Credit & Loans

    Should You Use Credit Cards To Fund Your Business?

    We give you 4 reasons to consider using a credit card instead of a business loan to fund your business, and how to be smart about it.

You May Also Like

Hot Definitions
  1. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  2. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  3. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  4. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  5. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  6. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!