In an asset-based facility, the amount a borrower may draw is not fixed. It is recalculated regularly from the value of specified collateral, and it rises and falls as that collateral changes. That calculation is the borrowing base. It is the central control in asset-based lending and in lender finance, and the reason those loans can be made to companies whose earnings would not support a conventional cash-flow loan.
Our focus page describes the approach in one line: “rigorous borrowing-base monitoring and lockbox arrangements that control cash receipts and maintain a buffer between the loan balance and collateral value.” See asset-based lending.
The formula
At its simplest:
Availability = (eligible collateral × advance rate) − reserves, capped at the facility commitment.
The borrower may draw up to availability. If outstanding loans exceed availability, the excess (an overadvance) must usually be repaid promptly.
Eligibility
Not all collateral counts. Eligibility criteria exclude assets that are hard to collect, hard to sell or legally compromised. Typical exclusions for receivables include:
- Invoices more than 90 days past the invoice date, or 60 days past due.
- Cross-aging: all receivables of a customer when a set share of that customer’s balance is past due.
- Receivables from affiliates, employees or government entities (unless assignment rules are complied with).
- Foreign receivables without credit insurance or letters of credit.
- Contra accounts, where the customer is also a supplier and may offset.
- Concentration excess: the portion of any single customer above a set share of the total.
- Bill-and-hold, consignment or disputed invoices.
For inventory, typical exclusions are work in process, slow-moving or obsolete stock, goods in transit, inventory held at third-party locations without a landlord or bailee waiver, and consigned goods.
Advance rates
The advance rate reflects how much the lender expects to realize from the collateral in a liquidation, net of costs, with a cushion. In the market generally, the following ranges are common, though every facility is set to its own collateral; they are not Caldrion terms.
| Collateral | Common market basis | Common advance rate range |
|---|---|---|
| Eligible receivables | Face value | Often 80–90%, lower for weaker or concentrated debtors |
| Eligible inventory | Lower of cost or net orderly liquidation value (NOLV) | Often 50–65% of cost or 80–90% of NOLV |
| Machinery and equipment | NOLV from a third-party appraisal | Often 70–85% of NOLV, frequently amortizing |
| Pledged loans (lender finance) | Outstanding principal of eligible loans | Set to the underlying collateral and pool performance |
Net orderly liquidation value is an appraiser’s estimate of what assets would bring in an orderly sale over a reasonable period, net of the costs of selling. It is not book value and not going-concern value. The collateral valuation entry covers appraisals and field examinations.
Reserves
Reserves reduce availability for risks the eligibility criteria do not capture. Common reserves cover rent at leased locations where the landlord could claim priority, unpaid payroll and sales taxes, customer deposits, dilution above historical norms, and priority claims such as certain agricultural or wage liens. Lenders usually retain discretion to impose reserves in good faith, and borrowers often negotiate notice periods and limits on that discretion.
Illustrative arithmetic
The following is illustrative arithmetic only.
| Line | Amount |
|---|---|
| Gross receivables | $18.0M |
| Less ineligible (over 90 days, affiliates, concentration excess) | ($2.4M) |
| Eligible receivables | $15.6M |
| × advance rate 85% | $13.3M |
| Eligible inventory at NOLV | $8.0M |
| × advance rate 85% of NOLV | $6.8M |
| Gross availability | $20.1M |
| Less rent reserve and tax reserve | ($0.9M) |
| Borrowing base | $19.2M |
| Facility commitment | $20.0M |
| Availability (lesser of base and commitment) | $19.2M |
| Outstanding loans | $15.5M |
| Excess availability | $3.7M |
If a large customer stops paying, its receivables age out of eligibility, the base falls and excess availability shrinks. That is the point: the facility contracts automatically as the collateral weakens, rather than waiting for a quarterly covenant test.
Borrowing base certificates
The borrower reports the calculation in a borrowing base certificate, usually monthly, and weekly or even daily when availability is tight or performance weakens. The certificate is supported by a receivables aging, an inventory report and a reconciliation to the general ledger. Errors in certificates are one of the clearest early signs of trouble, which is why lenders test them in field examinations.
Cash dominion and lockboxes
In most asset-based facilities, customers pay into a lockbox or a deposit account subject to a deposit account control agreement (DACA). Under full cash dominion, collections sweep daily to repay the revolver, and the borrower redraws what it needs. Under springing dominion, the borrower controls its cash until availability falls below a trigger or a default occurs. Cash control prevents collateral from turning into cash and leaving the lender’s reach. Project Orchard is a case study with full cash control.
Field examinations
A field exam is an on-site audit of the collateral and the reporting that supports it: test-verification of receivables with customers, review of credit memos and dilution, inventory observation and a walk-through of the systems. Exams usually happen before closing and periodically afterward, more often when performance weakens.
The borrowing base in lender finance
In lender finance, the collateral is a pool of loans made by a specialty lender. Eligibility tests apply to each underlying loan: its collateral, its loan-to-value, its payment status and its documentation. Concentration limits restrict exposure to any single borrower, property type or geography. Performance triggers on delinquencies and defaults can reduce advance rates or stop new advances. Project Ledger is a case study.
Red flags
- Dilution rising faster than sales.
- Aging that improves suddenly without a change in customers or terms.
- Large credit memos issued after the period end.
- Inventory that grows while sales fall.
- Delays in delivering certificates.
For how availability interacts with covenants, see Covenants explained. For the rest of the chapter, see the overview of loan terms and documentation.
This entry is general information as of November 2026, not investment, legal or tax advice, and not an offer of securities.