Pre-funding account
Asset-Backed Securities glossary · Asset Backed Securities
Definition
A trust account holding cash at closing to be used to acquire additional receivables during a defined ramp-up period.
Pre-funding account in plain English
Imagine investors hand a company a big pile of cash today to buy loans, but the company hasn't found enough loans to buy yet. A pre-funding account is a holding tank where that leftover cash sits at the deal's start, waiting to be spent on more loans over the next few weeks or months. It exists because it's often easier to raise all the money at once, then go shopping for the actual loans afterward. The account has a deadline (the ramp-up period), and any cash not used to buy loans by then usually gets returned to investors.
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