How Bank Carve-Outs Provide Additional Funding to Business Clients

Banks play a central role in commercial lending, providing clients with reliable capital, competitive pricing, and long-term relationship support. Operating within prudent regulatory and credit frameworks enables banks to maintain portfolio strength and stability, an advantage for both their customers and the broader financial system.

At times, however, even strong, growing businesses may require more working capital than a bank can extend under those established guidelines, often due to receivables exceeding concentration limits, extended payment terms, or other eligibility constraints. To support these clients, without increasing exposure or adjusting existing risk parameters, many banks are turning to a proven solution: the bank carve-out.

A carve-out lets a specialty lending partner finance assets, most commonly accounts receivable, that sit outside the bank’s lending appetite, while the bank keeps ownership of the client relationship, visibility, and credit position. This structure expands liquidity for shared clients, safely, efficiently, and in full alignment with the bank’s priorities.

This article explains how carve-outs work, the advantages for banks and their clients, and how specialty lenders supplement traditional banking products to deliver flexible, compliant financing solutions.

Bank Carve-Outs: A Structured, Low Risk Path to Additional Liquidity

A bank carve-out is an agreement where the client’s existing bank lender excludes certain assets, most commonly accounts receivable, from its blanket lien. This arrangement enables a partner lender to take a first-priority position on those assets and provide financing.

Here’s how it works:

• The bank carves out a defined pool of collateral, allowing a partner lender to take priority on those assets.
• A specialty lender provides fast, flexible financing on the carved-out assets and establishes its own lockbox or controlled account to receive payments on the receivables. This keeps the collateral clean, separate, and clearly controlled.
• The bank retains the primary client relationship.
• The client gains incremental liquidity.

How Banks and Partner Lenders Work Together

Banks excel at relationship banking, competitively priced credit, treasury services, and long-term client support. At the same time, they must balance those strengths with regulatory requirements, concentration limits, and prudent portfolio management.

A carve-out structure complements this approach by allowing banks to meet expanded client needs while maintaining their overall credit posture.

Specialty lenders bring operational capabilities built for asset pools that require intensive monitoring, such as inventory, high-volume receivables, and billings with extended payment terms, irregular dilution patterns, or industry-specific documentation. Their technology and service models enable them to manage these assets efficiently and transparently, working in coordination with the bank or independently, based on the bank’s preference.

A successful outcome is when:

• The client receives extended credit to meet its working capital needs.
• The partner lender manages the carved-out collateral efficiently.
• The bank strengthens its client relationship and maintains its credit position while retaining full visibility into the borrower’s full capital structure.

Carve-Outs Enable Banks to Offer Flexible Financing

Commercial clients increasingly expect fast, flexible access to working capital, especially in industries where growth cycles, seasonality, or payment terms shift quickly. Carve-outs enable banks to meet these expectations while staying within established guidelines.

Rather than turning clients away whose receivables or assets exceed lending limits, banks can partner with experienced specialty lenders to provide targeted financing.  This approach allows the bank to remain at the center of the relationship, maintains oversight, and offers clients additional liquidity without increasing its exposure.

Partnering with a specialty lender enables banks to deliver:

• A seamless borrower experience.
• Faster access to capital.
• Tailored financing options for specific industries.
• Continued relationship ownership and visibility.

This curated approach strengthens loyalty, improves retention, and positions the bank for future business as the client grows.

A/R Financing: The Primary Tool for Bank Carve-Outs

Tech-enabled specialty lenders use advanced data tools and underwriting technology to make fast, accurate credit decisions and manage receivables with precision. This enables banks to support clients whose borrowing needs exceed regulatory, policy, or collateral-eligibility limits, without increasing risk or exposure.

By carving out specific receivables to a partner lender, banks preserve the primary client relationship while providing a seamless path to additional liquidity.

What is A/R Carve-Out Financing: Accounts Receivable (A/R) financing is a credit facility secured exclusively against customer receivables. It accelerates cash flow by advancing capital tied up in invoices, allowing companies to fund working capital needs, reduce payment bottlenecks, and support growth.

A carve-out structure allows banks to remain the primary lender while shifting specific receivables – typically those that exceed concentration limits, involve extended terms, or fall outside eligibility criteria – to a specialty lender for separate financing.

Example Case: Pharma Company with Extended Account Receivables

The company’s current bank was unable to include a client’s receivables in its ABL borrowing base due to credit-policy constraints related to customer concentration and extended payment terms. To support the client without increasing exposure, the bank carves out the company’s A/R and partners with a specialty lender to finance it through an A/R facility.

The improved cash flow enables the company to invest in inventory, strengthen supplier relationships, and meet growing customer demand.
Example Case: Staffing Company with High Concentration Risk

A staffing company generates 80% of its revenue from two major buyers. The bank cannot increase its line without breaching concentration limits, so it carves out these two accounts.
A partner lender finances the carved-out receivables through an A/R facility, while the bank continues to lend against the remaining portfolio.

With additional liquidity, the staffing company is able to support payroll, add new contracts, and stabilize cash flow. As the customer base diversified over time, the bank refinanced the entire facility under a single, expanded credit line.

Why Carve-Out Partnerships Are Growing

Economic conditions, evolving regulatory expectations, and increased credit discipline across banking have elevated demand for collaborative structures. Carve-outs help banks support clients who require more working capital than traditional parameters allow, without increasing bank risk.

A bank carve-out gives businesses access to fast, flexible financing and expanded access to working capital while preserving their core banking relationship.

Conclusion

Bank carve-outs are a powerful tool for extending liquidity for clients whose credit needs exceed traditional credit parameters or whose receivables fall outside the bank’s lending criteria.

Instead of turning business away or referring clients externally, banks can partner with leading specialty lenders to deliver financing that allows borrowers to leverage assets the bank chose not to finance directly. A/R carve-outs are often the first and most effective solution for banks looking to extend liquidity safely to clients with concentrated or extended-term receivables. This coordinated approach strengthens the client’s financial structure while protecting the bank’s market position, credit posture, and long-term relationship with the borrower.

Contact us to learn about eCapital’s long history of cooperative lending, fintech capabilities, and streamlined approach to supporting bank carve-outs.

Key Takeaways

• Banks lend conservatively to protect stability.
• At times, even strong, growing businesses require more working capital than a bank can extend within established guidelines.
• Bank carve-outs allow specialty lenders to finance collateral assets that fall outside the bank’s lending parameters, without increasing bank risk.
• Collaborative carve-out structures give borrowers the liquidity needed to operate and grow while the bank maintains relationship ownership.
• Stronger client performance enhances the bank’s opportunity for future business and portfolio expansion.