An asset-based facility lends against a pool of collateral, usually receivables and inventory, sometimes plant, machinery and property. Each month the borrower reports the collateral, the lender applies advance rates and reserves, and the result is the borrowing base: the amount that can actually be drawn.
The levers that matter
- Eligibility. Invoices over a certain age, foreign debtors, related parties and contra accounts are commonly excluded. Each exclusion reduces availability.
- Advance rates. The lender advances a percentage of eligible receivables, and a percentage of inventory value as assessed by an independent appraiser. Both percentages are negotiable.
- Concentration limits. Exposure to any single debtor above a set percentage is often excluded, which can hurt businesses with a few large customers.
- Reserves. Lenders can deduct reserves for rent, taxes, dilution and other priority claims, sometimes at their discretion.
Two facilities of the same headline size can deliver very different liquidity once these definitions are applied. We run a borrowing-base model on each lender's proposed terms before the client chooses, and negotiate eligibility and reserve language before signing, when it is still negotiable.
General information, not advice on any specific transaction. See Disclosures.