What Is a Borrowing Base?

A borrowing base is a calculated limit on how much a borrower can draw from their revolving credit facility, typically based on the value of certain eligible assets that the borrower owns. It's designed to reduce the lender’s risk by tying the loan amount to collateral that can be liquidated in case of default.

 📌 Typical Components in C&I Loans

For a C&I revolving line of credit, the borrowing base often includes:

• Accounts Receivable (usually only those less than 60 or 90 days old)
• Inventory (possibly with a haircut to account for liquidation value)
• Sometimes equipment or other working assets

Each asset category is given an advance rate, such as:

• 80% of eligible accounts receivable
• 50% of eligible inventory

Example: If a borrower has $1M in eligible A/R and $500K in eligible inventory:

Borrowing Base = (80% of $1M) + (50% of $500K) = $800K + $250K = $1.05 million

This means the borrower can draw up to $1.05 million, even if their line is larger.

🧾 If There Is No Borrowing Base

If a C&I revolver does not include a borrowing base requirement, the loan operates more like a committed line of credit without regular collateral reporting or dynamic draw limits. This generally implies:

• The lender may be relying more on the borrower’s general creditworthiness rather than tying availability to specific assets.
• It could still be secured, but the collateral is not being actively monitored or tied to draw capacity.

• The borrower does not need to submit regular borrowing base certificates or asset aging reports.
• This reduces administrative burden, especially for smaller businesses.

• Without a borrowing base, the lender is exposed to potential asset deterioration without an automatic adjustment in availability.
• To offset this, lenders might:
  • Charge a higher interest rate
  • Impose tighter covenants
  • Provide a smaller line overall

• Smaller businesses, startups, or well-capitalized borrowers may receive revolvers without a borrowing base for ease of use.
• Alternatively, these lines are used as overdraft protection or working capital smoothing tools rather than intensive collateral-based financing.

⚖️ Summary Comparison