Borrowing Base


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.

  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. Collateral Trust Bond

    A bond that is secured by a financial asset - such as stock or ...
  5. Additional Collateral

    Additional assets put up as collateral by a borrower against ...
  6. Term Deposit

    A deposit held at a financial institution that has a fixed term, ...
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. Personal Finance

    Why Are Mortgage Rates Increasing?

    Learn how the secondary mortgage market and investor demand affect the cost of home ownership.
  4. 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.
  5. Savings

    Best Ways to Send Large Sums of Money Abroad

    Understand why it may be difficult to send large sums of money internationally. Learn about the top five ways to send large sums of money abroad.
  6. Active Trading Fundamentals

    How Does Fundera Work and Make Money?

    Learn more about Fundera, the online loan broker service agency, and discover what it offers and how it makes money through its service.
  7. Economics

    Explaining the Tier 1 Leverage Ratio

    The Tier 1 leverage ratio measures a bank’s core capital against its total assets.
  8. Investing Basics

    Understanding Proprietary Trading

    A firm engages in proprietary trading when it uses its own money to trade financial instruments in order to profit for itself.
  9. Stock Analysis

    These S&P 500 Companies Hold the Most Cash

    Large cash positions allow for many different options and here's why they are beneficial to shareholders.
  10. Credit & Loans

    Home-Equity Loans: A How-To Guide

    Looking for a home-equity loan? The rules are the same as for any other purchase: First, educate yourself, then shop for the best deal.
  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. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  2. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  3. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  4. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
  5. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  6. Capitalized Cost

    An expense that is added to the cost basis of a fixed asset on a company's balance sheet. Capitalized Costs are incurred ...
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!