What is a Borrowing Base?
A borrowing base is the maximum amount a borrower can draw under an asset-backed lending facility at any given time. It is calculated by starting with gross accounts receivable, removing ineligible receivables, applying an advance rate to the eligible pool, and then subtracting reserves.
The borrowing base is recalculated periodically (monthly, weekly, or daily) and reported to the lender via a borrowing base certificate (BBC). If the calculated borrowing base falls below the outstanding loan balance, the borrower must repay the excess.
The formula is straightforward, but the details of each step , especially the eligibility rules, are where complexity lives. This guide walks through each step with a sample calculation.
8-Step BBC Calculation Process
Follow these eight steps to calculate a borrowing base from scratch. The sample numbers below illustrate a typical mid-market AR facility.
Start with Gross Accounts Receivable
Pull the total outstanding accounts receivable from your ERP or general ledger as of the reporting date. This is every open invoice, regardless of age or quality. In our example, the company has $25,000,000 in total outstanding invoices.
Classify Receivables into Aging Buckets
Sort each invoice by Days Past Due (DPD) into standard aging buckets: Current (0 DPD), 1-30, 31-60, 61-90, 91-120, and 121+. The aging profile determines which receivables are eligible and at what advance rate. Older buckets carry higher default risk and are typically excluded or receive lower advance rates.
Remove Cross-Aged Receivables
Apply the cross-aging rule: if more than 50% of an obligor's receivables are past due beyond a defined threshold (commonly 60 or 90 days), ALL of that obligor's receivables become ineligible, including current invoices. This protects against obligors showing systemic payment problems. In our example, $1,200,000 is removed due to cross-aging.
Remove Intercompany and Affiliated Receivables
Exclude receivables owed by entities related to the borrower, subsidiaries, parent companies, affiliates, or entities under common control. These are excluded because the borrower could influence payment timing. Our example removes $800,000 in intercompany receivables.
Remove Foreign, Government, and Other Ineligibles
Exclude receivables from foreign obligors (unless covered by credit insurance), government entities (which may have sovereign immunity issues), bankrupt obligors, and any invoices past the aging cutoff (typically 90+ DPD). Also exclude contra accounts, consignment sales, and bill-and-hold arrangements. In our example: $500,000 foreign, $300,000 government, $1,700,000 over-90-days aged out.
Apply Concentration Limits
Cap the eligible amount from any single obligor (or group of related obligors) at the concentration limit, typically 10-15% of the eligible pool. Amounts above the cap are excluded. This prevents the portfolio from being over-exposed to a single credit. Our example removes $1,000,000 in concentration excess.
Calculate Eligible AR and Apply the Advance Rate
Sum all remaining receivables to get Eligible AR, then multiply by the contractual advance rate (typically 80-90%). The result is Gross Availability, the maximum the lender would fund before reserves. Eligible AR of $19,500,000 at an 85% advance rate yields $16,575,000 in gross availability.
Subtract Reserves to Get Net Availability
Deduct all required reserves: dilution reserve (protects against credits and returns), yield/servicing reserve (covers interest and servicing costs), and loss reserve (cushion for defaults). The result is Net Availability, the actual amount the borrower can draw. After $2,075,000 in total reserves, net availability is $14,500,000.
Sample Borrowing Base Calculation
The table below shows a complete borrowing base calculation for a hypothetical company with $25M in gross receivables.
| Line Item | Amount |
|---|---|
| Gross Accounts Receivable | $25,000,000 |
| Less: Cross-aged receivables | ($1,200,000) |
| Less: Intercompany receivables | ($800,000) |
| Less: Foreign obligor receivables | ($500,000) |
| Less: Government receivables | ($300,000) |
| Less: Over-90-day aged receivables | ($1,700,000) |
| Less: Concentration excess | ($1,000,000) |
| Total Ineligible Receivables | ($5,500,000) |
| Eligible Accounts Receivable | $19,500,000 |
| Advance Rate | 85% |
| Gross Availability | $16,575,000 |
| Less: Dilution reserve (8%) | ($1,560,000) |
| Less: Yield / servicing reserve | ($325,000) |
| Less: Loss reserve | ($190,000) |
| Total Reserves | ($2,075,000) |
| Net Availability (Borrowing Base) | $14,500,000 |
In this example, 22% of gross AR is ineligible, and the borrower can access $14.5M of the original $25M, a net availability ratio of 58%.
Key Formulas
Eligible AR
Eligible AR = Gross AR - Cross-Aged - Intercompany - Foreign - Government - Over-Aged - Concentration Excess - Other Ineligibles
Gross Availability
Gross Availability = Eligible AR x Advance Rate
Net Availability (Borrowing Base)
Net Availability = Gross Availability - Dilution Reserve - Yield Reserve - Loss Reserve