Asset-Based Lending (ABL): Borrowing Base Certificates, Ineligible Receivables & Advance Rates

## Asset-Based Lending Mechanics and Availability Formulas

Asset-Based Lending (ABL) revolving credit facilities provide working capital secured directly by balance-sheet current assets rather than cash flow multiples.

### 1. The Borrowing Base Certificate Formula

Net borrowing availability is governed by daily or weekly borrowing base submissions:

$$\text{Gross Availability} = (\text{Eligible A/R} \times 85\%) + (\text{Eligible Inventory} \times \text{NOLV \%}) - \text{Reserves}$$

$$\text{Net Availability} = \min(\text{Credit Facility Limit}, \text{Gross Availability}) - \text{Outstanding Loan Balance}$$

| Collateral Category | Maximum Advance Rate | Key Ineligible Exclusions |
|:--------------------|:--------------------:|:--------------------------|
| Commercial A/R | 85% | 90+ Day Aging, Cross-Aging >25%, Intercompany, Government |
| Finished Goods | 50% - 65% of NOLV | Slow-Moving (>120 Days), Obsolete, Packaging Materials |
| Raw Materials | 40% - 50% of Cost | Work-in-Process (WIP), Custom Components, Offsite Stock |
| Machinery (M&E) | 75% of FLV (Term) | Uncertified Appraisals, Leased Hardware |

### 2. Dilution Reserves and Covenant Headroom

When non-cash credits (returns, volume discounts, dispute allowances) exceed 5% of gross billings, lenders establish dollar-for-dollar dilution reserves, directly reducing available borrowing capacity.