What a borrowing base is
In an asset backed facility the headline limit is a ceiling, not an entitlement. What you can actually draw is the borrowing base: a calculated figure derived from eligible receivables, and sometimes inventory, multiplied by agreed advance rates and reduced by defined reserves.
The point of the mechanism is that the facility grows and contracts with the business. When sales rise, availability rises with them. When collections slow or a customer falls outside the eligibility rules, availability falls, which is where borrowers are most often caught out.
Eligibility rules that matter
Typical exclusions are invoices past a stated ageing limit, balances owed by related parties, disputed or contra accounts, and exposure above a concentration cap on any single customer. Foreign receivables are often excluded unless insured or supported by a letter of credit.
Each exclusion is reasonable on its own, but together they can remove a meaningful share of a ledger. Before signing, run the eligibility rules across your last twelve months of sales and see what availability would actually have been in your tightest month.
Advance rates and reserves
Advance rates against approved receivables usually sit between eighty and ninety per cent. Inventory, where included, is advanced at a much lower rate because resale value is uncertain and realisation takes time.
Reserves are deductions the lender applies for identified risks: dilution from credit notes, unpaid taxes, rent owed at a leased warehouse, or a hedging position. Reserves are usually reviewed at each audit and can move, so ask how they are set and what would cause them to increase.
Reporting discipline
Most facilities require a monthly reconciliation, and larger ones require weekly reporting. Late or inaccurate reporting is treated as a credit event by many lenders because it removes their visibility of the collateral.
The businesses that get the most from these facilities are the ones that treat ledger hygiene as an operational priority: prompt invoicing, disciplined credit control and rapid resolution of disputes. Each of those directly increases availability.
Frequently asked questions
Can availability fall below my drawn balance?
Yes. If eligible assets fall, the facility can go over its base and the lender will require repayment of the excess, usually within a short cure period.
Is inventory always included?
No. Inventory is added where it is identifiable, saleable and independently valued, and it is advanced at a much lower rate than receivables.
How often is the collateral audited?
Typically once or twice a year for stable facilities, more frequently where performance deteriorates or reporting quality slips.
Last reviewed: 2026-09-06