Finance term
Borrowing Base
Also known as: borrowing base certificate, BBC, eligible receivables, advance rate
Definition
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.
Detailed explanation
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.
◈ Worked example
- Manufacturing company: Eligible AR $3M × 85% = $2.55M + Eligible Inventory $1M × 55% = $550K − Reserves $200K = $2.9M borrowing base. Outstanding balance on the revolver is $2.5M — the company has $400K available to draw. Next week, AR grows to $3.5M — availability increases to $1.375M.
- Concentration ineligibility: A distributor has $5M AR, but $2M is owed by a single customer (40% concentration). Lender cap is 25% per debtor. The $750K in excess (above 25% of $5M = $1.25M maximum) is ineligible. Only $4.25M of AR qualifies for the advance rate calculation.
- Inventory advance: A retailer has $4M in eligible finished goods inventory. Lender applies 50% advance rate — $2M. If a field exam finds $500K in slow-moving SKUs, the eligible pool drops to $3.5M and inventory availability drops to $1.75M — a $250K reduction in availability.
Common questions
The most-asked questions about Borrowing Base — answered straightforwardly.
How often does the borrowing base change? +
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.
What happens if my outstanding balance exceeds the 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.
What is a field examination and why does it matter? +
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.
Further reading
This glossary entry is educational content. ClearValue Lending is a business & personal financing platform — not a lender, broker, or financial advisor. Specific product terms vary by lender; verify with the lender or issuer before applying. See privacy policy.