What is A Borrowing Base?

A borrowing base refers to the maximum amount of money that a lender is willing to lend to a borrower based on the value of the borrower’s assets. Typically, this is used in commercial lending (more specifically asset-based financing) especially in industries where assets such as inventory, accounts receivable, or equipment serve as collateral for the loan.


Lenders determine the borrowing base by assessing the value of the borrower’s assets and applying a predetermined percentage to that value. This percentage, known as the advance rate, represents the portion of the asset’s value that the lender is willing to lend against.


For example, if a borrower has $1 million worth of eligible assets and the lender applies a 70% advance rate, the borrowing base would be $700,000. This means the borrower can borrow up to $700,000 against their assets.


The borrowing base is regularly monitored and updated by the lender to reflect changes in the value of the underlying assets. If the value of the assets decreases, the borrowing base may decrease as well, potentially requiring the borrower to repay some of the loan amount to maintain compliance with the borrowing base requirements. Conversely, if the value of the assets increases, the borrowing base may increase, allowing the borrower to access additional funds.

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