Borrowing Base and Accounts Receivable Financing: Calculate Usable Credit

Understand what the borrowing base measures

Accounts receivable are amounts customers owe for goods or services. An agreement may recognize only a defined subset as eligible collateral and advance a percentage against that amount. The borrowing base translates the recognized collateral into a financing limit, with any additional reserves or restrictions specified by the lender.

The OCC describes receivables and inventory financing as collateral-based commercial lending and identifies collateral controls as part of asset-based lending oversight. SBA’s Working Capital Pilot also includes monitored structures. These references explain financing mechanics; they do not establish that a specific facility is available through Get Commercial Capital.

Ask whether the borrowing base covers receivables alone or also inventory or other assets. Keep each category’s eligibility rules and advance method separate rather than applying one percentage to every asset on the balance sheet.

Read the exclusions before using the advance percentage

Request a clear definition of eligible invoices, including aging, customer location, disputes, credits, related-party balances, concentration, and proof of completed performance where applicable. The actual agreement determines which rules apply. A large balance from one customer may produce less availability than several balances with the same total face value.

Prepare an aging report that can be traced to individual invoices and the general ledger. Identify credit memos, returns, offsets, and disputed items promptly. A report that shows only total receivables cannot explain whether the collateral satisfies the eligibility rules.

Ask how exclusions interact. For example, an invoice already removed for age should not be deducted again as a disputed balance in your own calculation unless the lender’s method specifically requires a different treatment. Document the sequence so overlapping categories do not distort the result.

Calculate a hypothetical borrowing base

Assume $200,000 of receivables and four non-overlapping exclusion categories: $30,000 past the hypothetical age limit, $10,000 disputed, $20,000 from related parties, and $20,000 above a hypothetical concentration limit. Eligible receivables are $120,000. These exclusions and figures are invented examples, not standard eligibility terms.

At an assumed 75% advance rate, the preliminary amount is $90,000. Subtracting a $5,000 reserve produces an $85,000 borrowing base. With a $100,000 commitment and $60,000 already outstanding, the illustrative additional availability is $25,000: the lower of commitment or borrowing base, less current borrowing. Other contractual restrictions could reduce it further.

Understand how collections and aging change availability

If another $20,000 becomes ineligible while borrowing remains $60,000, the example’s eligible receivables fall to $100,000. Applying the same advance percentage and reserve gives a $70,000 base and $10,000 additional availability. Capacity has fallen by $15,000 without creating cash to pay bills.

Now consider a different event: an eligible customer actually pays $20,000 and the entire collection reduces the loan balance. Under the same simplified assumptions, the base falls to $70,000 but outstanding principal falls to $40,000, leaving $30,000 availability. Collections and ineligibility can both reduce receivables while producing very different liquidity results.

Confirm how collections are handled, how frequently certificates are required, and what occurs if outstanding borrowing exceeds the permitted base. Ask about correction procedures, notices, and required repayments under the actual agreement rather than assuming a universal grace period.

Distinguish lending from factoring and assess reporting readiness

Receivables-secured lending uses invoices as collateral for an obligation. Invoice factoring generally involves selling invoices to a provider; the Federal Reserve describes that structure separately from loans. Ask who collects from customers, who bears specified nonpayment risks, what fees apply, and whether recourse or repurchase obligations exist. The label alone does not settle those questions.

Before considering a monitored facility, identify who can maintain accurate invoices, aging reports, credits, collections, and supporting records. Reporting discipline matters because yesterday’s receivable balance may not support today’s requested draw.

For a business-purpose capital review, describe the customer payment cycle, existing financing, and cash gap to The Mortgage Calculator team. Discuss the business need without assuming a dedicated asset-based or factoring product is available.