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.

INVESTOPEDIA EXPLAINS '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. Collateral Trust Bond

    A bond that is secured by a financial asset - such as stock or ...
  4. Collateralization

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

    Additional assets put up as collateral by a borrower against ...
  6. Corporate Credit Rating

    The opinion of an independent agency regarding the likelihood ...
Related Articles
  1. Behind The Scenes Of Your Mortgage
    Insurance

    Behind The Scenes Of Your Mortgage

  2. Payday Loans Don't Pay
    Options & Futures

    Payday Loans Don't Pay

  3. Why Are Mortgage Rates Increasing?
    Personal Finance

    Why Are Mortgage Rates Increasing?

  4. Car Title Loans: Good Option For Fast ...
    Options & Futures

    Car Title Loans: Good Option For Fast ...

comments powered by Disqus
Hot Definitions
  1. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  2. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  3. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  4. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
  5. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
  6. Budget Deficit

    A status of financial health in which expenditures exceed revenue. The term "budget deficit" is most commonly used to refer ...
Trading Center