The most a lender will advance on a line of credit at a given time, set as a percentage of the eligible receivables, inventory or other collateral pledged.
On a formula line, the limit in the loan agreement is only a ceiling. What you can draw is the lesser of that commitment and the borrowing base. The OCC handbook on asset-based lending says loan advances are limited to a percentage of eligible collateral, and that percentage is the advance rate.
The handbook gives the usual ranges. Common advance rates run from 70 percent to 85 percent of eligible accounts receivable. Rates on inventory are usually lower, because inventory still has to be sold and paid for. Not every receivable counts: lenders commonly leave out accounts that are badly past due, amounts owed by affiliates, and the part of any one customer’s balance above a concentration limit.
Example: a company has $500,000 of eligible receivables and an 80 percent advance rate. Its borrowing base is $400,000. If it already owes $350,000, it can draw $50,000 more, even on a $1,000,000 line. If receivables fall, availability falls with them.
You report the figures on a borrowing base certificate. The Federal Reserve’s manual says one should be compiled at least monthly; the OCC notes that for retailers most banks want it daily or weekly.
How it shows up in the data here
A borrowing base is a term inside one loan agreement and appears in no public file. The site can show who holds business loans, at business lenders and business loan books, but not which lenders run formula-based lines. Asset-based lending is a specialty; ask a lender whether it has a group for it and what reporting it requires.
Go further
- Business lenders by state: Lenders holding business loan balances.
- Search lenders: Filter by state and lender type.
- Business line of credit package checklist: A line of credit pays for the gap between spending money and collecting it. The lender wants to see that the gap is real, that it closes, and what it can take as collateral while it is open.
- How bankers evaluate a commercial loan deal: A credit officer asks one question five ways: how will this loan be repaid, and what happens if it is not? Knowing the five tests lets you size a request before you send it.
Related terms
- Line of credit: A commitment from a lender to advance money up to a set limit, which a business can draw, repay and draw again as its cash needs rise and fall.
- Working capital: The money a business has tied up in day-to-day operations, measured as current assets minus current liabilities; a working capital loan funds that gap.
- UCC lien: A lender's claim on business assets other than real estate, made public by filing a financing statement under Article 9 of the Uniform Commercial Code.
- Blanket lien: A security interest that covers all or nearly all of a borrower's assets, present and future, instead of one named piece of collateral.
- Loan covenant: A promise in a loan agreement that the borrower will do certain things, or will not, for as long as the loan is outstanding, such as keeping a minimum debt service coverage ratio.
- Farm operating loan: A short-term loan or line that pays a farm's yearly costs, such as seed, feed, fertilizer and rent, and is repaid when the crop or livestock is sold.
Sources
Plain definitions for orientation, not legal, tax or credit advice. A lender's own policy decides what it will do.