Glossary · underwriting

Borrowing base

Also called borrowing base certificate, collateral base, BBC.

The pool of eligible collateral, each class multiplied by its own advance rate and reduced by reserves, that caps what can be drawn on an asset-based or factoring facility at any moment.

Drafted with AI assistance and checked by a person. Its factual claims were verified against the sources listed at the end, by Find Me Funders research desk.

What it means

Two numbers govern a revolving asset-based facility, and you can draw the lesser of them. One is the commitment, fixed at closing and printed on the term sheet. The other is the borrowing base, recalculated every reporting period from a certificate you submit. In a healthy file the commitment governs. In every file that matters, the base does.

How it is built

  1. Start with gross collateral by class: accounts receivable, inventory, sometimes equipment or real estate.
  2. Strip out ineligibles under the definitions in the agreement — invoices past the aging cutoff, cross-aged debtors, concentration excess, government or foreign account debtors, contras, related-party billings, unbilled or progress amounts.
  3. Apply the advance rate for each class to what is left, and cap any class at its sublimit.
  4. Subtract reserves.
  5. Subtract what is already outstanding, including letters of credit issued under the facility.

What survives is availability.

What varies between funders

The eligibility definitions do most of the work and they are negotiated, not standard. Aging measured from invoice date or from due date; a concentration cap at 15 percent or 30 percent; whether the dilution reserve is reset monthly or after each field exam; whether the funder can impose new reserves at its own discretion, which most asset-based agreements permit in the exercise of reasonable credit judgment. Reporting frequency also varies — monthly for a comfortable file, weekly or daily for a tight one, which changes how fast a bad month reaches your availability.

Where this one catches people

The line size in the term sheet is the number the broker sells and the number you will rarely be able to draw. Businesses plan from the commitment and are then surprised when the certificate produces far less.

Worse, the base moves for reasons that have nothing to do with your sales. One customer crossing a concentration cap, one aging bucket tipping over the cutoff, one field exam raising the dilution reserve, and the base drops in a single certificate. The direction is the cruel part: receivables slow down in exactly the conditions where you need the money, and slow receivables are what shrink the base. Model your availability under a bad month before you sign, not the good one the funder used to size the facility.

Worked through

Illustrative. Commitment 1,250,000.

Gross accounts receivable 1,200,000. Ineligibles: 140,000 over 90 days, 60,000 of concentration excess on the largest customer, 25,000 of contra accounts. Eligible receivables 975,000, at an 85 percent advance rate, gives 828,750.

Eligible inventory 400,000 at a 50 percent advance rate gives 200,000, but the inventory sublimit is 150,000, so 150,000 counts.

Gross base 978,750. Reserves: dilution 30,000 and a landlord reserve of 18,000, so 48,000. Net base 930,750.

Outstanding loans 700,000. Availability is 230,750 — against a commitment of 1,250,000 that nobody will ever advance in full.

Figures in the example are illustrative. They show the arithmetic, not a quote — what any one lender would charge is on that lender's page, where it is published at all.

Where you will meet this term

Working Capital Business Line of Credit Invoice Financing Asset-Based Lending

Read next

Advance rateThe share of an asset's eligible value a funder will put up front, used in factoring, asset-based lending and… AvailabilityWhat you can actually draw right now: the borrowing base less reserves, less loans outstanding, less letters … ConcentrationHow much of a business's revenue or receivables depends on a single customer, and the cap funders place on ho… Cross-agingThe eligibility rule that disqualifies every invoice from a customer once too large a share of that customer'… DilutionThe gap between what a business invoices and what it eventually collects, caused by credits, returns, allowan… Eligible receivableAn invoice that counts toward the borrowing base because it passes the lender's tests on age, customer, conce… Field examA structured review of a borrower's receivables, payables, inventory and books, performed before an asset-bas… Ineligible receivablesInvoices a factor or asset-based lender excludes from the borrowing base entirely, so they generate no availa… OveradvanceFunding beyond what the borrowing base formula supports, extended as a temporary and usually discretionary ac… ReserveThe portion of an invoice's face value a factor holds back at funding and releases, less fees, once the custo…

Sources and checks

Every figure on this page traces to a document someone read, on a date. Where a check is past its review date it says so rather than passing as current.

  1. the borrowing base example recomputes line by line to 230,750 of availability against a 1,250,000 commitment example
    Eligible AR = 1,200,000 - (140,000 + 60,000 + 25,000) = 1,200,000 - 225,000 = 975,000; x 0.85 = 828,750. Inventory 400,000 x 0.50 = 200,000, capped by the 150,000 sublimit to 150,000. Gross base = 828,750 + 150,000 = 978,750. Reserves 30,000 + 18,000 = 48,000; net base = 930,750. Less 700,000 outstanding = 230,750 availability. Every step checks.
    Find Me Funders — Arithmetic recomputed and checked in review Verified against source Checked 10 Sep 2026 by Find Me Funders research desk

Borrowing base — common questions

What does borrowing base mean?

The pool of eligible collateral, each class multiplied by its own advance rate and reduced by reserves, that caps what can be drawn on an asset-based or factoring facility at any moment.

Where does borrowing base catch people out?

The line size in the term sheet is the number the broker sells and the number you will rarely be able to draw. Businesses plan from the commitment and are then surprised when the certificate produces far less.

Is borrowing base the same as an interest rate?

Borrowing base is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.

Which products does borrowing base apply to?

Working Capital, Business Line of Credit, Invoice Financing, Asset-Based Lending.

Is there a worked example of borrowing base?

Yes, on this page, and it is labelled illustrative. It shows the arithmetic, not a quote from any lender.

What else should I read alongside borrowing base?

Advance rate, Availability, Concentration, Cross-aging, Dilution.

Has this definition been checked?

Yes. Its claims were verified against the sources listed at the end of this page, and the reviewer is named.

Is this legal advice?

No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.

Can I suggest a term?

Yes — [email protected]. The glossary grows from what people are actually shown in contracts.