A borrowing base is the maximum loan amount a lender will advance under an asset-based lending (ABL) facility, calculated as the sum of eligible accounts receivable plus eligible inventory, each multiplied by a lender-determined advance rate. Typical advance rates: 80–85% on eligible AR, 50–60% on eligible inventory. The borrower submits a borrowing base certificate (BBC) — usually monthly or weekly — to determine the current availability. See fdic.gov and occ.gov for bank ABL examination guidance.
A borrowing base (or 'borrowing base certificate') is the formula-driven calculation that determines how much a borrower can draw on an asset-based revolving credit facility at any given time. Unlike a conventional revolving line — where availability is fixed at a stated maximum — an ABL facility fluctuates with the underlying assets serving as collateral. ## Borrowing Base Formula Availability = (Eligible AR × AR Advance Rate) + (Eligible Inventory × Inventory Advance Rate) − Reserves Eligible AR is accounts receivable that meet the lender's eligibility criteria — typically: (a) not more than 90 days past due; (b) owed by creditworthy account debtors; (c) not subject to offset, dispute, or contra accounts; (d) not owed by affiliates or related parties; (e) not concentrated beyond a threshold (e.g., no single debtor > 20% of AR pool without approval). Ineligible AR is excluded from the base. Eligible Inventory similarly excludes: slow-moving, obsolete, or damaged goods; goods in transit or held on consignment; work-in-process (often ineligible or discounted); finished goods subject to customer return rights. Reserves are lender-imposed deductions to the borrowing base for anticipated costs: landlord lien reserves, PACA/PASA reserves (agricultural product liens), accrued wages, environmental reserves, and others. Borrowers submit a BBC (borrowing base certificate) — a borrower-certified calculation — on a schedule set by the lender (monthly for smaller facilities, weekly or daily for larger or higher-risk). Lenders conduct periodic field examinations to audit the underlying collateral and validate BBC accuracy. Inaccurate BBC submission can trigger a default. See occ.gov/publications-and-resources/publications/comptrollers-handbook/index-comptrollers-handbook.html (Asset-Based Lending handbook) for examination standards.
The borrowing base changes with every BBC submission — typically monthly for smaller facilities or weekly/daily for larger ABL revolvers. Because the borrowing base is tied to fluctuating assets (AR collections reduce it; new invoices increase it), availability moves constantly. Seasonal businesses experience significant swings — peak season borrowing base can be 2-3× the off-season borrowing base.
An 'over-advance' situation — your balance exceeds your borrowing base — is typically a default or a condition requiring immediate cure (repayment to bring the balance within availability). Lenders sometimes permit temporary over-advances by waiver during seasonal fluctuations, but these must be negotiated in advance. Chronic over-advances signal deteriorating collateral quality and often trigger an audit.
A field exam (also called a 'field audit' or 'collateral audit') is a lender-commissioned inspection of the borrower's AR aging, inventory, and BBC records, typically conducted by a third-party auditor. The auditor verifies that eligible collateral exists and that the BBC is accurate. Field exam frequency is set by the credit agreement — typically annually for good borrowers, quarterly or more often if there are concerns. Findings can reduce the borrowing base or change eligibility criteria.