Financing the Middleman: Traps for the Unwary When Financing an Intermediary Business

Lenders relying on a security interest in the accounts receivable of borrowers need to use caution when financing an intermediary business that could be subject to express or constructive trusts. If an intermediary business holds accounts receivables or deposits in express or constructive trust, there is a risk that a lender’s security interest would not attach to the portion of the accounts receivable or deposit that is destined for the trust beneficiary. This report explains the law relating to such express and constructive trusts and offers suggestions on how to protect lenders that finance intermediary businesses that might be subject to an express or constructive trust.