Borrowing Base

AAA

DEFINITION of 'Borrowing Base'

The amount of money a lender will loan to a company based on the value of the collateral the company pledges. The borrowing base is usually determined by a method called margining, where the lender determines a discount factor that is multiplied by the value of the collateral; the result is the amount that will be loaned to the company.

BREAKING DOWN 'Borrowing Base'

For example, if company X goes to a lender to borrow money, the lender will assess the company's strengths and weaknesses and evaluate the lender's risk. Based on the risk the lending company feels is associated with lending money to company X, a discount factor is determined, say 85%. If company X is offering collateral that is worth $100,000, the amount the lending company will give the company is equal to 85% of $100,000, or $85,000.

RELATED TERMS
  1. Collateralized Borrowing And Lending ...

    A money market instrument that represents an obligation between ...
  2. Collateral

    Property or other assets that a borrower offers a lender to secure ...
  3. Collateralization

    The act where a borrower pledges an asset as recourse to the ...
  4. Additional Collateral

    Additional assets put up as collateral by a borrower against ...
  5. Collateral Trust Bond

    A bond that is secured by a financial asset - such as stock or ...
  6. Interest Coverage Ratio

    A debt ratio and profitability ratio used to determine how easily ...
Related Articles
  1. Insurance

    Behind The Scenes Of Your Mortgage

    Four major players slice and dice your mortgage in the secondary market.
  2. Options & Futures

    Payday Loans Don't Pay

    Hold too tightly to this rescue line and you'll soon be drowning in debt.
  3. Options & Futures

    Car Title Loans: Good Option For Fast Cash?

    These loans provide fast cash, but they could leave you deeper in debt - and without a car.
  4. Personal Finance

    Why Are Mortgage Rates Increasing?

    Learn how the secondary mortgage market and investor demand affect the cost of home ownership.
  5. Stock Analysis

    Benefits of Regional Bank ETFs over Commercial Banks

    The SPDR S&P Regional Banking ETF offers a stable local alternative to broad-based multinational commercial banking sector funds.
  6. Economics

    What's Tier 2 Capital?

    Tier 2 capital is a category of supplementary capital that banks hold.
  7. Economics

    What Does a Merchant Bank Do?

    A merchant bank is a financial institution that performs underwriting, loan services, financial advising and fund raising services to large corporations.
  8. Economics

    How Does a Credit Facility Work?

    A credit facility is a loan or collection of loans a business or corporation takes to generate capital over an extended period of time.
  9. Professionals

    Worried About Bond Market Liquidity? Try ETFs

    If you're looking for liquidity in the bond market, then turn to bond ETFs. Here is an analysis of 11 to consider.
  10. Credit & Loans

    What's a Bridge Loan?

    A bridge loan is a loan that “bridges” a borrower over a temporary shortage in funds on hand.
RELATED FAQS
  1. What is a margin account?

    A margin account is an account offered by brokerages that allows investors to borrow money to buy securities. An investor ... Read Full Answer >>
  2. How does your checking account affect your credit score?

    Your credit report provides a snapshot for prospective lenders, landlords and employers of how you handle credit. For any ... Read Full Answer >>
  3. How does a company obtain a bank guarantee?

    A bank guarantee serves as a promise from a commercial bank that the liability of a particular debtor will be met if contractual ... Read Full Answer >>
  4. What is the banking sector?

    The banking sector is the section of the economy devoted to the holding of financial assets for others, investing those financial ... Read Full Answer >>
  5. What's the difference between a letter of credit and a bank guarantee?

    Bank guarantees represent a more significant contractual obligation for banks than letters of credit do. A letter of credit ... Read Full Answer >>
  6. How accurate or important is the debt service coverage ratio (DSCR) in evaluating ...

    Both creditors and investors use the debt service coverage ratio, or DSCR, when analyzing the financial condition of a company. ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
  2. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
  3. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
  4. Tiger Cub Economies

    The four Southeast Asian economies of Indonesia, Malaysia, the Philippines and Thailand. Tiger cub economy indicates that ...
  5. Gorilla

    A company that dominates an industry without having a complete monopoly. A gorilla firm has large control of the pricing ...
  6. Elephants

    Slang for large institutions that have the funds to make high volumes trades. Due to the large volumes of stock that elephants ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!