Commercial Insights

Why Every Lender Needs a Deposit Account Control Agreement (DACA)

Protect cash flow. Reduce risk. Build trust.

In lending, a key consideration is ensuring the borrower has the ability to make consistent, uninterrupted payments over the life of the loan.

Yet what happens when a borrower faces challenges? In those situations, a lender can find itself competing with other creditors for the borrower’s money, which in turn could have an adverse effect on receivables and cash flow.

So how can a lender protect receivables and cash flow? One way to help ensure greater peace of mind is with a Deposit Account Control Agreement (DACA).

A DACA isn’t just a legal formality—it can provide an additional layer of protection for lenders. Simply put, a DACA is intended to help ensure the lender’s interests are protected when a borrower is having difficulty.

What is a DACA?

A Deposit Account Control Agreement is a three-party contract between the lender, borrower, and the borrower’s depository bank. It gives the lender control over its borrower’s deposit account; the one typically used for collecting revenues or collateral proceeds. With this mechanism in place, payments can be facilitated in accordance with agreed-upon terms. Just as importantly, a DACA perfects the lenders’ security interest in the account and gives the lender priority access to a borrower’s account in the event of default.

The benefit? According to Tara Tarvin, DACA Product Manager at Regions Bank, “Our clients find a DACA to be invaluable, offering predictability and reassurance when it comes to cash management. It’s a reliable tool for asset-based lending, project finance, and any other transaction where cash flow integrity is essential.”

Tarvin adds that a DACA is more than a legal document. “It’s a strategic tool that empowers lenders to mitigate risk, optimize operational efficiency and protect client relationships. It helps ensure cash flows remain predictable, transactions run smoothly, and relationships thrive—even when borrower circumstances change.”

DACAs in Practice: Kincaid Frame & Associates CO., LPA

Kincaid Frame & Associates, CO., LPA, a boutique law firm in Cleveland, Ohio, can attest to the important role DACAs can play. Alex Frame, an attorney with the firm, relies on DACAs when serving healthcare clients.

“We are transactional attorneys with a focus on representing lenders who make working capital loans, primarily in the healthcare sector. We help clients at every phase of the transaction—from establishing term sheets, drafting and negotiating loan documents, closing loans, and post-closing servicing. A fundamental part of the deals we work on is setting up DACAs with banks.”

Frame emphasizes the true test of a DACA provider is when a borrower faces trouble meeting loan obligations.

“Cash control is highly important. Loans typically perform as expected if everyone adheres to the agreed-upon terms. But when borrowers get caught in difficult financial situations, they might panic and decide to use cash on hand for operating expenses, instead of turning it over to their lender in accordance with their loan documents or as required by law. It is critical for lenders to not put themselves in a situation where a borrower can make funds disappear, and from a practical standpoint, that can only be achieved by making sure DACAs are set up correctly, and the borrower is using a reliable and sophisticated bank that can perform their obligations under the DACAs, like Regions.”

As a result, lenders need a DACA that is both watertight and operationally sound, backed by a banking partner who understands the urgency and complexity of these agreements.

Key benefits of a DACA for lenders

• Enhanced Cash-Flow Control
  Borrowers direct all revenues into the DACA. In an active DACA, funds are swept daily to the lender for timely application of payments. In a passive DACA, the lender can assume control upon a trigger event, adding security without disrupting normal operations.
• Improved Risk Management
  DACAs establish lender control over the deposit account, which is required to perfect a security interest under UCC Article 9. This control secures the lender’s priority and reduces the risk of unauthorized withdrawals or competing claims.
• Operational Efficiency
  A well-executed DACA can help prevent costly delays when properly implemented. As Frame puts it: “Time is money. If a DACA provider takes several days to set up our agreements—or address problems with how they are functioning—that’s time when cash isn’t sweeping into a lender’s accounts, and more importantly, that’s cash that might be improperly used by the borrower. It’s critical for lenders to use sophisticated counsel who understands how DACAs should be structured, and for lenders to work with banks that are able to promptly fulfill their obligations under DACAs.”
• Protection Against Creditors
  While it varies by jurisdiction, DACAs can potentially safeguard funds when legal challenges arise. Frame adds, “We had a situation where a borrower was sued, and a garnishment order was issued on a borrower’s operating account. Because of the existing DACA, we were able to prevent the garnishment from occurring, which ensured payroll funds went to the borrower’s employees instead of the judgment creditor. Without the DACA, checks to that borrower’s (a nursing home) employees would have bounced, causing a significant amount of harm to the borrower, and possibly the lender.”
• Strengthened Client Relationships
  Lenders who offer DACAs demonstrate reliability and foresight, building trust with borrowers and partners. As Frame notes, “Over time, Regions has become a trusted partner. Their team understands our processes and continues to refine how we work together.”

Ready to Help

Regions Bank’s DACA team specializes in creating tailored programs to meet the specific needs of lenders and their customers alike. Contact our team today and learn how DACAs can protect your cash flow and reduce risk.