Important Disclosure. For professional counterparties only. Informational content. Not a public offer. Any mandate is subject to underwriting, KYC/AML, sanctions screening, conflicts checks, and definitive documentation.
Borrowing Base Mechanics: Eligibility, Advance Rates, Reserves & Deficiency Triggers
A borrowing base facility is not a credit line.
It is a formula-driven availability engine that converts controlled assets into lendable capacity.
The facility limit is irrelevant. Availability is everything.
Core Borrowing Base Formula
Availability =
(Eligible Inventory × Advance Rate) + (Eligible Receivables × Advance Rate) − Reserves − Other Adjustments
Every variable in this equation is negotiated.
Eligibility Criteria
Eligibility defines what counts.
Anything not explicitly eligible is ineligible by default.
Typical Eligibility Tests
- Good title and enforceable pledge
- Located in approved jurisdictions
- Stored at approved facilities
- Inspected and verified
- Insured with lender as loss payee
- Free of liens
Eligible Inventory vs Ineligible Inventory
| Eligible | Ineligible |
|---|---|
| Segregated inventory under CMA | Commingled inventory |
| Bonded warehouse / controlled tank | Open yard / uncontrolled depot |
| Recently inspected | Stale or unverified stock |
Eligibility is where most transactions die.
Advance Rates
Advance rates define what percentage of eligible collateral is lendable.
| Collateral Type | Indicative Advance Rate Range |
|---|---|
| Liquid exchange-traded metals | 60% – 75% |
| Refined petroleum products | 55% – 70% |
| Agricultural commodities | 50% – 65% |
| Concentrates / specialty materials | 40% – 60% |
Advance rates are driven by:
- Price volatility
- Liquidity depth
- Storage control
- Inspection frequency
- Jurisdiction risk
Reserves
Reserves are deductions applied after advance rates.
They exist to absorb uncertainty.
Common Reserve Categories
- Concentration reserve
- Jurisdiction reserve
- Counterparty reserve
- Aging reserve
- Operational reserve
Example
Borrowing Base before reserves: USD 50m Reserves: USD 7m Net Availability: USD 43m
Reserves are dynamic and can change monthly.
Borrowing Base Certificate (BBC)
The BBC is the operational heart of the facility.
It is typically delivered weekly or monthly.
- Lists collateral pools
- Applies eligibility
- Applies advance rates
- Applies reserves
- Calculates availability
Incorrect BBC = event of default.
Borrowing Base Deficiency
A deficiency exists when:
Outstanding Loans > Borrowing Base Availability
Typical Cure Mechanisms
- Paydown
- Post additional collateral
- Increase equity
Failure To Cure
- Blocks new draws
- Triggers cash dominion
- Can escalate to default
Relationship To Controls
Borrowing base mechanics only work if:
- Collateral is controlled
- Inspections are current
- Accounts are controlled
- Cash waterfalls enforce priority
Borrowing base without controls is unsecured lending.
Where FG Capital Advisors Fits
FG Capital Advisors designs borrowing base frameworks as part of structured trade finance transactions.
We focus on eligibility architecture, advance rate optimization, reserve logic, and deficiency mechanics so that lenders can underwrite with confidence.
We then place these facilities with private credit and institutional lenders.
Disclaimer. Best-efforts execution. No guarantees of funding, pricing, or closing.
