Borrowing base

A formula determining how much can be borrowed against eligible receivables.

Why it matters

In asset-based lending, the borrowing base limits credit availability to a formula tied to the value of eligible assets, ensuring the lender is protected by collateral that exists and is collectible. When receivables are pledged to both a bank ABL line and a factoring program, the two facilities create competing claims. Borrowing base calculations can reduce ABL availability when factored invoices are removed from the eligible collateral pool, since factored receivables are owned by the factor rather than pledged to the bank. Understanding how factoring interacts with an existing ABL facility is critical before combining the two.

How it appears in contracts

Borrowing base provisions appear in asset-based lending agreements rather than factoring agreements, but their interaction with factoring is addressed in intercreditor or subordination agreements. When a business has both an ABL line and a factoring program, the intercreditor agreement specifies which receivables are pledged to the bank and which are sold to the factor. Factored receivables are typically excluded from the bank borrowing base, which reduces bank availability but avoids double-pledging. Sellers should confirm with both lenders how the facilities interact and whether the combined structures create any covenant conflicts.

Related terms

Related article: How invoice factoring works

Related reading

Sources

  • International Factoring Association - International Factoring Association. Accessed 2026-05-19. Industry association source for factoring terminology and industry context.
  • Secured Finance Network - Secured Finance Network. Accessed 2026-05-19. Industry education source for secured finance and asset-based lending context.
Financial disclaimer. This page is educational only and is not financial, legal, tax, accounting, or credit advice. Factoring terms vary by provider and contract. Read the full disclaimer.