Borrowing Base

Amount a lender is willing to advance against the dollar value of pledged collateral. The borrowing base is determined by multiplying the value of the assigned collateral (receivables, inventory, equipment) by a discount factor, a process known as margining. In accounts receivable financing, the lender may agree to advance funds against 80% of current receivables. For example, the borrowing base of a customer pledging receivables of $200,000 is $160,000. As a rule, receivables qualify for a higher borrowing base (and a smaller margin) than inventory because receivables are one step closer to being converted into cash. See also Floating Lien.