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Borrowing Base
Last Updated: Jun 6, 2019
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The borrowing base is the amount of money a lender will loan to a company based on the value of the collateral the company pledges to secure its loan. The lender cannot lend the full amount of A/R and inventory as it is unrealistic that the entire value could be recovered in a liquidation scenario. Instead, they determine availability by removing ineligible A/R and inventory from their respective gross amounts and multiplying the resulting values by an advance rate. These advance rates vary depending on the type of collateral, the quality of the collateral, and the risk appetite of the lender.