Borrowing Base

What is a 'Borrowing Base'

A borrowing base is 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. Collateral

    Property or other assets that a borrower offers a lender to secure ...
  2. Advance Rate

    The maximum percentage of the value of a collateral that a lender ...
  3. Additional Collateral

    Additional assets put up as collateral by a borrower against ...
  4. Collateral Value

    The estimated fair market value of an asset that is being used ...
  5. Stock Loan Rebate

    Interest paid by a stock lender to a borrower who has put up ...
  6. Security Agreement

    A document that provides a lender a security interest in a specified ...
Related Articles
  1. Credit & Loans

    What Is Collateral?

    Collateral is property or other assets that a borrower offers a lender to secure a loan. If the borrower stops making the promised loan payments, the lender can seize the collateral to recoup ...
  2. Credit & Loans

    What are the Five C's of Credit?

    The five C’s of credit are what banks and other lenders evaluate about a potential borrower when making a lending decision. The five C’s are Character, Capacity, Capital, Collateral and Conditions. ...
  3. Investing Basics

    Cash Flow Lending Vs. Asset-Based Lending

    When companies need financing, they rely on two primary forms of lending: cash flow-based and asset-based lending. We look at the pros and cons of each.
  4. Credit & Loans

    What Does a Lender Do?

    A lender provides funds to another with the expectation those funds will be repaid with interest.
  5. Trading Strategies

    How Does Securities Lending Work?

    Securities lending is the act of loaning a stock or other security to an investor or firm.
  6. Economics

    Explaining Debt

    Debt is any amount a borrower owes a lender.
  7. Entrepreneurship

    Answer These 7 Questions Before Applying for a Loan For Your Startup

    Learn the seven key questions every budding entrepreneur needs to have answers to before sitting down with a lender to discuss a startup loan.
  8. Professionals

    Alternatives To Loans

    When conventional markets aren't lending, businesses turn to these practices.
  9. Economics

    Forces Behind Interest Rates

    Get a deeper understanding of the importance of interest rates and what makes them change.
  10. Retirement

    Getting A Loan Without Your Parents

    Use the 5 "W"s to finance your dreams without banking on a second signature.
RELATED FAQS
  1. What is the most important "C" in the Five Cs of Credit?

    Learn how the five C's of credit affect new credit application decisions, and understand how a lender analyzes each aspect ... Read Answer >>
  2. What is the difference between secured and unsecured debts?

    Learn the differences between secured and unsecured debt; discover how banks buffer risks associated with each type of loan ... Read Answer >>
  3. When did people first start using collateral to secure loans?

    Read about the history of lending and collateral, including a time when an entire nation was pledged as collateral for all ... Read Answer >>
  4. What is a collateral assignment of life insurance?

    Learn about collateral assignment of life insurance so you can make a wise decision about what kind of collateral to use ... Read Answer >>
  5. Does inflation favor lenders or borrowers?

    Find out under what circumstances inflation benefits borrowers more than lenders and in which situations inflation can be ... Read Answer >>
  6. What is the difference between asset-based lending and asset financing?

    In the most common usage, the terms "asset-based lending" and "asset financing" refer to the same thing. Asset-based lending ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. 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 ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center