How a borrowing base is built from receivables and inventory, which assets get excluded before you ever see a limit, and what the reporting really costs in time.
May 22, 2026 · Relief Capital Funding Desk
Asset-based lending sizes your credit to the value of what sits on your balance sheet rather than to a multiple of your cash flow. A lender builds a borrowing base — a running calculation of eligible receivables, inventory, and sometimes equipment, each discounted by an agreed advance rate — and lets you draw against it. As you invoice more, the base rises and so does your availability. As customers pay, the base falls and the facility pays down. It behaves like a line of credit whose limit breathes with the business instead of sitting fixed at a number somebody set last year. For a growing company that is the crucial difference. A fixed line approved against last year's revenue becomes a constraint in the exact quarter you're winning, because the orders that justify a bigger facility are the same orders consuming the one you have. A borrowing base expands with the activity that created the need, which is why businesses tend to arrive at this product after outgrowing something simpler rather than by choosing it first.
That makes it the natural product for a company that is asset-rich and cash-flow-lumpy. A distributor holding $600,000 of stock and $1.2 million of receivables has substantial value tied up in things that aren't money yet, and a conventional lender reading only the profit-and-loss may see a business that doesn't service much debt. An asset-based lender reads the balance sheet instead. It's also why ABL is often reachable for businesses whose credit or recent trading history wouldn't support an unsecured facility at the same size — the collateral does the heavy lifting.
The trade is scrutiny. You'll report a borrowing-base certificate, usually monthly and sometimes weekly, with an aged receivables listing and inventory detail behind it. The lender will conduct field examinations, may appraise inventory, and will notice quickly if collections slow. None of that is hostile — it's the mechanism that lets the limit rise as you grow — but it is real administrative work, and a business without a bookkeeper who can produce clean ageing reports on schedule will find this product genuinely difficult to live with.
Two minutes with the desk beats two hours of tabs
Have an aged receivables report and an inventory number handy? The desk can sketch a realistic borrowing base on the first call.
Typical facility size
$50,000 – $5,000,000
Indicative; final terms depend on lender and profile.
Typical advance rate on eligible receivables
70 – 85%
Indicative; advance rates and eligibility rules are set by the lender for each borrower.
Build the base before you think about the rate, because eligibility decides more than pricing does. Take $1.2 million of receivables where $200,000 is aged past ninety days or owed by a customer the lender won't take: eligible receivables are $1.0 million, and at an 80% advance rate that supports $800,000. Add $600,000 of inventory at a 50% advance rate for another $300,000. The facility comes to roughly $1.1 million — against $1.8 million of assets. That gap between what you own and what you can borrow is the concentration limits, ageing cut-offs, and haircuts doing their work, and it is where nearly every surprise in this product lives.
Then price the carry. At an illustrative 9%, carrying $700,000 drawn costs about $63,000 a year, or roughly $5,250 a month — and you only pay on what's drawn, so a facility used seasonally costs a fraction of that. On top sit the fees that don't appear in the rate: an annual facility or unused-line fee, monthly monitoring or collateral-management charges, and field examination costs typically billed per exam. On a small facility those fixed costs can add several points to the effective rate, which is why ABL rarely makes sense below a few hundred thousand dollars of drawn balance no matter how attractive the headline rate looks. The way to compare offers properly is to model a realistic year: your expected average drawn balance, twelve months of monitoring fees, and one or two field exams, divided by that average balance. That number is your actual cost of capital, and it can differ from the quoted rate by several points in either direction depending on how heavily you use the facility.
If receivables are effectively your whole asset base and you'd rather not run a full borrowing-base facility, Invoice Factoring achieves much of the same result invoice by invoice, with less reporting and a per-invoice fee instead of a rate. If your needs are smaller and simpler, a Business Line of Credit is far cheaper to set up and carries none of the monitoring overhead, at a lower ceiling. And if the value is genuinely concentrated in stock rather than receivables, Inventory Financing targets that directly without a lien across every asset class you own.
ABL is a growth facility for businesses that have outgrown simpler products. The signal that you've reached it is usually a maxed-out line of credit alongside a healthy, growing receivables ledger — you're not short of value, you're short of a facility that recognises it. The honest caution is that the setup takes two to four weeks and the ongoing reporting never stops. If your finance function is one person doing books on a Sunday, get that resolved before the facility opens rather than discovering it during the first quarter. The businesses that do well with ABL treat the reporting as a management tool rather than a lender's imposition — the same weekly ageing report that keeps the facility compliant is the report that tells you which customer has quietly stretched from thirty days to seventy.
Send an aged receivables report
Email a recent ageing summary and an inventory figure — the desk will come back with an indicative borrowing base.
Factoring sells specific invoices and the factor typically collects them, often with your customer aware of the arrangement. Asset-based lending is a credit facility you draw on, secured across a broader base that can include inventory and equipment, with you still doing your own collections. ABL usually costs less on a per-dollar basis at scale; factoring is simpler, faster to set up, and better suited to smaller receivables ledgers.
Less than you would for an unsecured facility of the same size, because the collateral does most of the underwriting work. What matters more is the quality of your customers, the ageing profile of the ledger, and whether your reporting is trustworthy. A business with mediocre owner credit and a clean, well-diversified receivables book is often a better ABL candidate than the reverse.
It's an on-site review where an examiner tests your reporting against the underlying records — sampling invoices, confirming inventory counts, checking collections. Expect one before the facility opens and periodically thereafter, commonly once or twice a year, with the cost usually billed to you. Businesses that keep tidy records find them routine; businesses that don't find them expensive, in both fees and availability.
“A balance sheet full of assets is a credit line nobody has drawn yet.”
Find out whether your balance sheet supports a facility
A few questions on revenue, receivables, and inventory, and you'll see whether ABL is a realistic next step.