What are Ineligible Accounts

Ineligible accounts are assets held by a company that an asset-based lender will not allow as collateral for a loan or line of credit. Ineligible accounts may include accounts receivable that are more than 90 days past due, foreign accounts and illiquid investments. Federal government accounts over $1,000 may be eligible if the lender takes an assignment of claims. A percentage of payments for contracts in progress, known as “retention,” is typically considered ineligible as well.

BREAKING DOWN Ineligible Accounts

Unlike ineligible accounts, eligible accounts or assets that a lender is likely to accept as collateral include inventory, equipment and accounts receivable that have been due for fewer than 90 days. When a company requests a loan or line of credit, the bank or lender will examine its financial statements and only accept certain assets as collateral when determining the company's borrowing capacity. These assets make up what the lender considers tangible net worth. As a condition of the loan, the lender may require the company to meet ongoing financial standards such as not taking on additional debt and not selling any items that have been pledged as collateral.

The reason past-due accounts receivable would be considered ineligible as collateral, is that they might be too difficult for the borrowing company to collect. For example, a manufacturer of electronics parts may extend credit to customers outside of the United States. Past-due foreign accounts may involve complex legal issues, and be therefore more likely to have to be written off by the company. A company may also own a variety of less liquid assets which would be included as assets for accounting purposes, but not be considered eligible by lenders, such as real estate, vehicles, or certain equipment.