Borrowing Base & Advance Rates for Intangibles

The borrowing-base mechanic in one line

In asset-based lending (ABL), how much a borrower can actually draw is not a fixed loan amount — it is a moving number recalculated from the collateral pool, usually every month. That number is the borrowing base, and the whole facility flexes with it. The mechanic is deliberately simple so that both sides can agree it without dispute:

Every element narrows the gap between headline asset value and realisable security. Eligible collateral is the value that qualifies at all; the advance rate is the percentage a lender will lend against it; ineligibles are carved out before the maths runs; and reserves are held back for known risks. What remains is availability — the ceiling the borrower can draw to at that moment.

Indicative advance rates by collateral class

Advance rates are calibrated to how quickly, and how completely, a class of asset can be turned into cash in a distressed sale. Liquid, well-documented receivables attract the highest rates; specialised equipment and intangibles attract the lowest. The figures below are indicative ranges seen in the UK and broader ABL market, not guarantees — the exact rate depends on the quality of the underlying pool.

Typical advance rates in asset-based lending

Notice that inventory and equipment are advanced against a liquidation value, not a book or replacement value. A field examination or collateral audit tests the borrower's reported figures and independently estimates that liquidation value before drawdown — the advance rate then sits on top of the tested number, not the borrower's assertion.

Why IP is a marginal top-up, not a base rate

Intellectual property rarely carries a standing advance rate in mainstream ABL. Receivables and inventory clear predictably; a patent or brand estate does not. There is no deep, liquid secondary market that a lender can rely on to recover a fixed percentage on a compressed timetable, so IP is valued and lent against case by case, as an incremental slice of availability on top of the tangible base.

What governs that slice is the same trio of lender tests applied everywhere in intangible asset lending standards: separability (can the right be sold apart from the business?), saleability (would a buyer exist on a distressed timetable?), and legal strength (is title clean, unencumbered and in force?). Applied to an orderly-disposal value, those tests produce the realisable figure a lender is willing to include — and see valuing IP for secured lending for how a credit-grade appraisal is built. The income methods behind that appraisal — Relief-from-Royalty, Multi-Period Excess Earnings and With-and-Without — are asset-level IVS 210 techniques, distinct from investment-level (IPEV) approaches.

Ineligibles: value that never enters the base

Before an advance rate is applied, a lender strips out collateral it will not count. These ineligibles are not necessarily worthless — they are simply too risky, too concentrated or too hard to enforce to lend against. Common carve-outs include:

• Receivables past a stated age (often 90+ days), disputed or subject to set-off.
• Concentration above a cap — over-exposure to a single debtor.
• Related-party, foreign or government receivables where enforcement is uncertain.
• Slow-moving, obsolete or consigned inventory, and work-in-progress.
• IP with a broken chain of title, lapsed renewals or a prior charge on the register.

Clean, documented title matters here as much as in the security itself: contractor and employee IP that was never properly assigned is a classic ineligible, because a lender cannot advance against an asset the borrower may not fully own.

Reserves: the lender's cushion against known risks

Reserves are held back after eligible collateral is multiplied by its advance rate, to cover risks that would otherwise erode recovery in an enforcement. Where an ineligible removes an asset entirely, a reserve dents availability across the base. Typical reserves cover dilution (credit notes and returns that shrink the receivables pool), rent and outstanding wages that would rank ahead of a floating charge in insolvency, and unpaid taxes.

The borrowing-base certificate

The number is not static, so it has to be reported. A borrowing-base certificate is the periodic (typically monthly) statement in which the borrower reports collateral balances, applies the agreed advance rates, deducts ineligibles and reserves, and arrives at current availability. The lender relies on it to set the drawable limit until the next report, and reserves the right to test it through a field examination.

Accuracy is a covenant in itself. An overstated certificate that inflates availability is a serious breach, because it means the facility has been drawn beyond the collateral supporting it. This is why the same evidence a borrower assembles for a valuation — a clean register, verified balances, documented title — feeds directly into a credible certificate. Advisers building that foundation for a client can work from the collateral evidence pack, and borrowers can pressure-test the whole position with a Lending Readiness Report before a lender does.

For the wider mechanics of how IP becomes bankable security — valuation, charges and serviceability — start with the lender's guide or the IP-backed loans pillar. All advance-rate and value figures on this page are indicative ranges, not commitments, and any individual facility depends on the lender's own diligence.