Non-Notification Loan

A non-notification loan or non-notification factoring is a full-recourse loan that is securitized by accounts receivable (AR). It is a type of invoice factoring, which is a common means by which business-to-business (B2B) corporations obtain financing. In this form of invoice factoring, outstanding invoices are sold to a factoring company for a percentage of their value. This gives the business a source of cash to maintain a healthy cash flow.

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 a financing company because they do not assume any credit risk on the receivables sold or assigned.

Non-Notification Loans and the Law

English common law traditionally held that non-notification loans were invalid, and this remained true in the United States until the mid-20th century. Factoring had, by then, become a prevalent form of financing for the textile industry, a rapidly growing business whose financing needs may have stressed smaller banks in the U.S. banking system. By 1949, most U.S. states had legalized non-notification loans.

Non-notification loans, like notification loans, are most common in B2B settings because factoring companies will only give loans on invoices issued to corporate clients. Most factoring companies require borrowers to demonstrate minimum annual revenues, sign an annual contract, and make monthly minimum payments.

Increasingly, the Internet has allowed modern factoring companies to offer a broader range of notification and non-notification loans to more businesses, with lower revenue requirements and less stringent restrictions. In addition, non-notification loans have been adapted to specific industries, including construction, real estate, the medical industry, and trucking.