Borrowing Base
Definition
The borrowing base is the amount a lender will make available against a borrower's collateral, calculated as eligible collateral multiplied by its advance rate, less ineligibles and reserves. It is the central mechanic of asset-based lending: rather than fixing a loan amount up front, the facility flexes with the value of the underlying assets, so availability rises and falls as receivables, inventory and other collateral change. The formula is straightforward in principle. Each collateral class is valued, an advance rate is applied (indicatively receivables at 70 to 90 per cent, inventory at around 40 to 65 per cent of cost or up to 80 to 90 per cent of net orderly liquidation value, plant and equipment at roughly 50 to 80 per cent of orderly-liquidation value), and then collateral ineligibles and any lender reserves are subtracted to give availability. In mainstream ABL, IP is usually a marginal top-up valued case by case rather than a core component. For IP-led facilities, however, the intangible drives the base, and its contribution reflects the blended view of separability, saleability and legal strength applied to an orderly-disposal value. A UK example: a growth-stage business might combine a receivables and inventory line under an ABL facility with an IP element, where the IP is appraised by an independent valuer and revalued periodically, mirroring the annual revaluation used on facilities such as NatWest's High Growth IP Loan. The borrowing base matters because it keeps lending tethered to realistic recovery: it protects the lender against over-advancing and gives the borrower a transparent, defensible ceiling on what can be drawn. Field examinations and collateral audits test the reported figures, and any charge over the collateral must be registered at Companies House within 21 days under section 859A of the Companies Act 2006 to remain valid in an insolvency.
Complementary Terms
Concepts that frequently appear alongside Borrowing Base in practice.
An advance rate is the percentage of an asset's assessed value that a lender will actually lend against, converting collateral quality into a realistic borrowing limit. It is the discipline at the heart of advance rate lending: the gap between the asset's value and the amount advanced is the lender's cushion against realisation shortfalls, disposal costs and the time it takes to sell on default.
A borrowing base certificate is the periodic statement a borrower submits to its lender reporting the current value of eligible collateral, from which available borrowing capacity is calculated. It is the operational document that keeps an asset-based facility honest between formal reviews: the borrower lists receivables, inventory and any other qualifying collateral, applies the agreed advance rates, deducts ineligibles and reserves, and arrives at the availability figure the lender relies on to permit further drawings.
Collateral ineligibles are items a lender excludes from the borrowing base because they fail its eligibility criteria, so they generate no borrowing availability. In an asset-based facility, availability is calculated by applying an advance rate to eligible collateral, then deducting collateral ineligibles and any reserves.
An asset-based lending reserve is an amount a lender withholds from the borrowing base to cover specific risks or contingencies, reducing the funds a borrower can draw. In an asset-based facility, availability is built up as eligible collateral multiplied by an advance rate, less collateral ineligibles, less reserves.
Net orderly liquidation value is the orderly liquidation value of an asset less the direct costs of realising it, giving the amount a lender would expect to net after a controlled disposal. It strips out disposal expenses such as agent and legal fees, marketing costs, storage, and any taxes or commissions, leaving the figure that would actually reach the secured creditor.
A field examination is a lender's on-site verification of a borrower's collateral and reported financial figures, carried out before funding and periodically through the life of an asset-based facility. Field examination lending practice exists because availability in an asset-based facility depends on the accuracy of the numbers a borrower reports, and a lender will not simply take those figures on trust.
An overadvance is a drawing that exceeds the amount the borrowing base would normally support, so the borrower is advanced more than the eligible collateral, at applicable advance rates and net of ineligibles and reserves, would justify. In asset-based lending, availability is calculated from the collateral, and an overadvance temporarily breaks that link.
A form of lending in which the loan is secured against specific assets owned by the borrower, with the lender holding a security interest that allows them to seize and sell those assets in the event of default. Traditional asset-backed lending (ABL) uses tangible assets as collateral — commercial property, manufacturing equipment, inventory, and accounts receivable — and is a mature market with standardised frameworks, deep lender appetite, and LTV ratios typically ranging from 60% to 85%.
Related FAQ
What is a borrowing base and how does it work?
A borrowing base is the amount you can borrow against pledged assets. It is eligible collateral multiplied by an advance rate, less ineligibles and reserves, giving your available facility.
Read full answer →What is a field examination in asset-based lending?
A field examination is an on-site collateral audit where the lender tests the assets in your borrowing base — verifying reported figures and estimating liquidation value before and during the facility.
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