Eligible Collateral

Last Updated: Jun 7, 2019

Created By :

Last Edited By :

Created On :

Eligible collateral is the assets of a business that a lender considers of sufficient quality to lend against. Eligible collateral represents assets that a lender believes it could convert into cash to repay a loan in the event the owner of the asset, the borrower, went out of business. Eligibility of collateral is typically considered when accounts receivable, inventory, or machinery and equipment business assets are taken as collateral to secure a loan. A lender will analyze the type, performance, and quality of the assets to determine how much of the total asset category will be considered "eligible" to be included in the borrowing base used by the business to secure loans. The borrowing base is calculated by taking the eligible collateral and then applying an advance rate(s) to them.