A borrowing base is the calculated value of eligible assets that determines how much a lender will make available under an asset-based facility. Eligible receivables or inventory are reduced by exclusions, reserves and concentration limits, then multiplied by agreed advance rates.
How does Borrowing Base work in practice?
The lender starts with a current collateral report, removes assets that fail the facility’s eligibility rules, applies the agreed advance rate to each remaining asset class and deducts reserves. The resulting availability is compared with the facility limit and outstanding balance. New invoices, collections, aging and inventory changes can alter the borrowing base at the next reporting date.
What records support Borrowing Base?
Keep the borrowing-base certificate, source ledgers, eligibility calculations, reserves, collateral reports and reconciliations.
What does Borrowing Base not establish?
Availability can change between reporting dates. Inaccurate data or rapidly aging assets can create an unexpected overadvance.
