What is the difference between a borrowing base and availability?

The borrowing base is the value the lender's formula gives the collateral: eligible assets multiplied by advance rates, less reserves. Availability applies the facility limit to that figure, so it is the lower of the two. Where the collateral would support more than the limit, availability equals the limit. Some documents also use availability for the undrawn remainder, so the definition in the agreement governs.

What is excess availability?

Excess availability usually means the amount a borrower could still draw today: the lower of its borrowing base and its limit, less loans outstanding and any letters of credit issued under the line. It is the working measure of liquidity on an asset-based facility. Agreements define it differently, and some use it to switch on a covenant or tighter cash controls when it falls below a stated level.

What happens if availability falls below the amount drawn?

The difference is called an overadvance. Many agreements require the excess to be repaid promptly, and failing to do so can be a default. In practice the lender stops further drawings, takes incoming collections against the balance and asks why the collateral fell. It may allow a short, documented excess against a recovery plan, usually with closer monitoring, but it is not obliged to unless the agreement says so.

How often is availability calculated?

As often as the collateral is reported. Under closely controlled asset-based lending, the lender may adjust it daily from invoices and receipts. Other facilities rely on a weekly or monthly certificate with an aged debtors listing, sometimes moving to a shorter cycle when the borrower weakens. Between reports the figure is an estimate, which is why lenders also carry out field examinations of the ledger.

// WORKED EXAMPLETHE ARITHMETIC A DECISION RESTS ON

Availability (Borrowing Base): a Worked Example

The limit is what was signed. Availability is what can be drawn.

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED 2026-11-09 · 5 MIN READ

// THE SHORT ANSWER

Ask a business on an asset-based line how much it can borrow and the honest answer changes with each day's invoices. Availability is that answer. The lender starts from the ledger or stock it is willing to count, applies an advance rate, takes off reserves and stops at the facility limit. Set against the amount already drawn, the result is the business's real liquidity. Behind a headline limit of US$8m there can be far less to draw, and a balance that sat inside availability last month can fall outside it this month without another dollar being borrowed.

BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

// MAKE THE CALL

Issue 02 — Aoraki Trade Exports. Paid in USD, costs in NZD, asking for a NZ$6m multi-currency facility. The MD won't say which currencies. Your call first, then the senior banker's.

Read the file →

PART OF Trade Loan

// 01 — WHY THE LIMIT IS NOT THE NUMBER

A term loan advances a known sum. An asset-based line advances a share of something that changes daily: receivables, and sometimes stock. The limit in the agreement is only a ceiling. The collateral decides how far below that ceiling the business may actually go, on the reasoning that each dollar advanced should have behind it a debt the lender could collect or goods it could sell, at a discount for what goes wrong in a liquidation.

A finance director therefore needs a different figure from the one in the facility letter. A cash forecast built on the limit shows money that may not exist in the month it is needed, and a lender assessing liquidity headroom on this kind of line counts what the collateral will support, not what was signed.

// 02 — HOW IT IS CALCULATED

Eligible collateral = gross ledger − ineligible items

Borrowing base = eligible collateral × advance rate − reserves

Availability = the lower of borrowing base and facility limit

Undrawn availability = availability − amount drawn

Each line is a negotiated definition. Eligible receivables commonly exclude invoices past a set age, debts owed by related parties, amounts a customer can set off and the excess over a concentration limit. Many agreements also cross-age a customer, so that once enough of its balance is overdue the rest drops out too. The advance rate allows for shortfall on collection. Reserves are further deductions, often for dilution or for claims that could rank ahead of the lender, such as preferential creditors, and some agreements let the lender set them at its reasonable discretion. Letters of credit issued under the line usually use up availability as loans do.

A word on vocabulary. Usage is not settled. Some documents use availability for the whole amount that may be drawn, as this page does; others use it, or excess availability, for the part still undrawn. Read the definition before quoting the number.

// 03 — THE EXAMPLE

A maker of commercial lighting fixtures, constructed for this page like every figure in it, has an invoice discounting line with a US$8.0m limit and an 80% advance rate. Drawings are held at US$6.4m to keep the example simple. The rate, the limit and the exclusions are the example's and are not offered as a market norm. Three month-ends, in US$m:

Nov Mar Jun

Gross ledger 14.00 11.00 10.20

Over 90 days (0.90) (0.70) (1.90)

Cross-aged (0.10) (0.00) (0.80)

Related party, contra (0.50) (0.50) (0.50)

Over concentration cap (0.30) (0.40) (0.20)

Eligible 12.20 9.40 6.80

× 80% 9.76 7.52 5.44

Reserves (0.30) (0.30) (0.40)

Borrowing base 9.46 7.22 5.04

Limit 8.00 8.00 8.00

Availability 8.00 7.22 5.04

Drawn 6.40 6.40 6.40

Undrawn / (overadvance) 1.60 0.82 (1.36)

From March to June the ledger fell by 7% and availability by 30%. No new debt was taken on. Two slow customers pushed another US$1.2m past 90 days, and cross-ageing pulled US$0.8m of their current invoices out with it. The business is now US$1.36m over-advanced: it owes more than its collateral supports, and many agreements require the excess to be repaid promptly. November shows the opposite constraint. The collateral would have supported US$9.46m, but the limit stopped the line at US$8.0m, leaving US$1.46m of borrowing base unusable.

// 04 — WHAT A LENDER READS BESIDE IT

The nearest neighbour is the borrowing base itself. The base is the output of the formula; availability is what remains after the limit has been applied, and in a good month the two differ. The borrowing base certificate is the document that reports them, so availability is only as current as the last certificate. In closely controlled asset-based lending the figure may be refreshed daily as invoices and receipts are reported; elsewhere it may be weekly or monthly.

Availability is also often a trigger. Some facilities apply a springing covenant only when undrawn availability drops below a stated level, and some move collections into lender control at a similar point. A minimum liquidity covenant may count undrawn availability, or it may not. The agreement decides.

DEFINED IN ONE PARAGRAPH → · THE BORROWING BASE CERTIFICATE → · PRODUCT FILE: INVOICE FINANCE →

// 05 — WHERE IT DECIDES A FILE

Availability tends to fall when the business can least afford it. Customers pay later, invoices age, disputes rise and reserves grow, and where the lender controls collections, what comes in repays the line before it reaches the business. A lender therefore watches the share of the ledger it refuses to count. Here that share went from 15% in March to 33% in June, which says more about the quarter than either month's balance.

For a borrower negotiating the line, the definitions can matter more than the headline rate. On June's figures, removing cross-ageing would have added US$0.64m of availability (0.8 × 80%), nearly twice what five more points of advance rate would have brought (6.8 × 5% = US$0.34m). A lender faced with the overadvance has a short list: require repayment, allow a temporary excess against a plan, or ask for shareholder money. Which is right depends on whether the two slow customers are late or in dispute, and that is a question for the aged listing.

ELIGIBLE RECEIVABLES → · ADVANCE RATE → · BANK LOAN VS PRIVATE CREDIT →

// SOURCES

The documents the statements on this page rest on. Each was opened and checked when cited.

Office of the Comptroller of the Currency (US), Comptroller's Handbook: Accounts Receivable and Inventory Financing, March 2000 — pages 8, 19 and 29 — A US supervisor's description of the mechanics: drawings up to the lesser of the available borrowing base or the note amount, cross-aging, and daily adjustment of the credit available as eligible receivables and receipts are reported — sections 02 and 04.

// QUESTIONS PEOPLE ASK

What is the difference between a borrowing base and availability?: The borrowing base is the value the lender's formula gives the collateral: eligible assets multiplied by advance rates, less reserves. Availability applies the facility limit to that figure, so it is the lower of the two. Where the collateral would support more than the limit, availability equals the limit. Some documents also use availability for the undrawn remainder, so the definition in the agreement governs.
What is excess availability?: Excess availability usually means the amount a borrower could still draw today: the lower of its borrowing base and its limit, less loans outstanding and any letters of credit issued under the line. It is the working measure of liquidity on an asset-based facility. Agreements define it differently, and some use it to switch on a covenant or tighter cash controls when it falls below a stated level.
What happens if availability falls below the amount drawn?: The difference is called an overadvance. Many agreements require the excess to be repaid promptly, and failing to do so can be a default. In practice the lender stops further drawings, takes incoming collections against the balance and asks why the collateral fell. It may allow a short, documented excess against a recovery plan, usually with closer monitoring, but it is not obliged to unless the agreement says so.
How often is availability calculated?: As often as the collateral is reported. Under closely controlled asset-based lending, the lender may adjust it daily from invoices and receipts. Other facilities rely on a weekly or monthly certificate with an aged debtors listing, sometimes moving to a shorter cycle when the borrower weakens. Between reports the figure is an estimate, which is why lenders also carry out field examinations of the ledger.

// NEXT TO IT

// ON WHOSE DESK

The seats that read this term in an ordinary week. Each page says what the seat is for, who arrives in it, and the shape of the round it runs.

Transaction bankerSells and structures the plumbing a business runs on — accounts, payments, collections, liquidity and trade finance.
Credit analystReads a borrower and writes the recommendation a decision-maker will act on.
Business relationship managerCarries a book of trading businesses — wins them, keeps them, and is the bank's voice when the answer is no.

THE IN-TRAY · ONE MINUTE

Make the call on one file.

A short file on the ground this page covers. Every option opens with how far it sits from a senior banker’s read.

THE NUMBER · THE ECONOMY · CURRENCY AND TRADE

A company's costs are all in its home currency. It invoices an overseas customer in dollars, payable in 90 days. Between invoice and payment the dollar weakens.

Invoice: US$1.0m
Home currency per dollar, at invoice: 1.50
Home currency per dollar, at payment: 1.35

What did the move cost, in home currency?

5 MORE ON THE ECONOMY · CURRENCY AND TRADE →WHERE DO YOU READ FROM? THE PLACEMENT →

THE READING ROOMIN ONE PARAGRAPHAvailability (borrowing base) What is availability under a borrowing base or invoice finance facility?