Borrowing base
A borrowing base is the formula-driven maximum amount a lender will advance under a revolving or asset-based facility, calculated from the value of eligible pledged collateral after advance rates, eligibility filters and reserves. In the US Office of the Comptroller of the Currency's Asset-Based Lending handbook, the outstanding loan balance under asset-based lending is limited by both the total commitment of the facility and by the borrowing base as determined by the collateral value.
Borrowing base use on bank EF and CRE desks
On bank EF and CRE desks, a borrowing base appears in working-capital revolvers that monetise receivables and inventory, in commodity trade facilities, and in some real-estate or equipment-backed structures where advance rates sit beside loan-to-value tests. The security package pledges the working assets; availability rises and falls as eligible collateral converts to cash and is replenished. OCC materials state that borrowing-base monitoring also functions as an early-warning tool against credit deterioration and can support lighter financial-covenant packages when collateral controls are strong.
Typical borrowing-base collateral is accounts receivable and inventory. Less-liquid assets such as equipment, real estate or intellectual property may be included where the credit need and industry justify it, at the cost of lower liquidity in the base. Dominion of cash through a lockbox account or similar collection control is common so receipts reduce the loan or restore collateral discipline.
Calculation mechanics and monitoring
The outstanding balance may not exceed the lesser of the commitment and the borrowing base. A simplified computation starts with gross collateral, removes ineligibles, multiplies eligible value by advance rates, then subtracts reserves. OCC guidance cites common advance rates of about 70% to 85% of eligible accounts receivable, with some banks quoting higher headline rates that fall after dilution and minimum reserves. Inventory advance rates are set below expected net orderly liquidation value. Concentration caps, cross-ageing rules and past-due filters commonly exclude or haircut receivables.
Borrowers deliver periodic borrowing-base certificates. Field exams, appraisals and collateral audits test whether reported eligibility matches reality. An overadvance exists when the loan exceeds what the borrowing base supports; curing usually requires repayment, additional eligible collateral or a temporary permitted overadvance. Excess-availability covenants may require that a stated percentage of the base remain undrawn.
Boundaries versus factoring, LTV and project structures
A borrowing-base revolver retains the receivables as collateral for a loan. Factoring typically assigns receivables to a factor that may also ledger and collect them. CRE term loans often rely primarily on loan-to-value against appraised property value rather than a fluctuating working-asset base, though construction or transitional facilities can combine both. Project and untied raw-material financings may use offtake and reserve-account mechanics instead of a classic borrowing base; those structures still depend on a fixed and floating charge or equivalent security and, where syndicated, a security trustee.