The formulas
- Receivables availability = (total AR - ineligibles) x AR advance rate
- Inventory availability = lower of (eligible inventory x advance rate) and the sublimit
- Borrowing base = receivables + inventory availability
- Availability = lower of borrowing base and commitment - outstanding
How it works
An asset-based line lends against collateral, not just the commitment amount. Each month the borrower certifies receivables and inventory, takes out ineligible items, applies the advance rates and arrives at a borrowing base. The line can be drawn only up to the lower of the base and the commitment.
Typical ineligibles are invoices past 90 days, amounts owed by affiliates or foreign buyers, and receivables from customers who are also suppliers. A negative availability is an overadvance and must be repaid under most agreements. Use the definitions and rates in your credit agreement.
Illustrative figures only. Check the result against your firm's methodology before relying on it.
Common questions
Why is inventory advanced at a lower rate?
Inventory takes longer to turn into cash and sells at a discount in a liquidation.
What is a cross-aging rule?
If a set share of a customer balance is past due, the whole balance becomes ineligible. Enter it in ineligibles.
Do letters of credit count?
Yes. Most agreements reduce availability by outstanding letters of credit.
Formulas on this page are the standard definitions.
Runs in your browser. The figures you type are not sent to CORAA or stored. Check the result against your firm's methodology before relying on it.