Notice. This article is informational and general in nature. Any transaction remains subject to counterparty acceptability, KYC and AML, sanctions screening, diligence, documentation, security perfection, insurance, and third-party approvals. Obtain independent legal advice for contracts, remedies, and enforceability.
Commodity Borrowing Base Facility Guide
A borrowing base facility is the cleanest way to turn repeatable commodity flows into scalable working capital. Availability rises and falls with eligible inventory, in-transit positions, and receivables, under a defined control and reporting playbook.
This guide explains what lenders underwrite, what “eligible” actually means, and what you need to produce to get from first call to an executable term sheet.
Start Client IntakeWhat A Borrowing Base Facility Is
A borrowing base facility is a revolving credit line where lenders advance a defined percentage of eligible collateral. The collateral is usually a mix of inventory, goods in transit, and receivables. The borrower draws, repays, and redraws as goods move and invoices get collected.
The lender is not betting on a promise. The lender is betting on a monitored asset and cash cycle, backed by controls that work even when the relationship is stressed.
For a short primer on structure, see Borrowing-Base Revolving Trade Facility Setup. For service scope, see Commodity Borrowing Base And Revolving Credit Facility Advisor.
Who This Facility Fits
Borrowing base revolvers work best when trade flows are repeatable and the operating model can handle discipline. If your business needs a one-off financing for a single shipment, a revolver may be overkill.
| Best Fit | Usually Not A Fit |
|---|---|
| Commodity traders with repeat purchasing and repeat buyers, recurring documentation, and predictable cycle length. | First-time trades with unclear counterparties, weak contract enforceability, and no documented execution history. |
| Importers and processors with stable demand and stock rotation where inventory can be independently controlled. | Illiquid stock, uncertain title, or storage where the lender cannot verify existence and condition. |
| Exporters with clean offtake and collectable receivables, supported by a controlled collections setup. | High dispute risk receivables, heavy concentration with weak buyers, or uncertain payment mechanics. |
The Lender’s Underwriting Logic
Every borrowing base mandate comes back to the same questions.
- What is eligible? Define exactly which inventory and receivables count, and which are excluded.
- Who controls the collateral? Independent control is what turns a trade story into lendable structure.
- How is cash captured? Collections routing, sweeps, and waterfall rules reduce loss severity.
- How is value protected? Haircuts, reserves, audits, insurance, and hedging policy where relevant.
- What happens on stress? Step-in rights, release controls, default triggers, and liquidation pathway.
For indicative parameters and product ranges lenders will actually discuss, see Trade Finance Term Sheet.
Eligibility Criteria
Eligibility is where facilities become real. It is also where most borrowers get surprised, because eligibility is written for lender survival, not borrower convenience.
| Collateral Type | Typical Eligibility Tests | Common Exclusions |
|---|---|---|
| Inventory in warehouse | Clean title, approved storage, independent verification, insured, identified lots, controlled release. Often supported by a collateral management agreement. | Disputed title, unapproved warehouses, co-mingled stock without segregation, missing insurance endorsements. |
| In-transit goods | Acceptable title documents, insured transit, clear route, documentary alignment, defined discharge and release mechanics. | Non-negotiable or misaligned transport docs, uncertain routing, weak insurance, unclear discharge control. |
| Receivables | Confirmed buyer, clean invoice terms, no set-off risk, aging limits, concentration limits, assignment and collections control. | Old invoices, dispute history, offsets, heavy concentration, unapproved jurisdictions or buyers. |
If warehouse control is core to the deal, see Warehouse Receipt Finance with Collateral Management Agreements.
Advance Rates, Haircuts, And Reserves
There is no universal “LTV” in commodity finance. Advance rates depend on liquidity, volatility, custody quality, enforceability, and operational control. Reserves are the lender’s way of pricing real-world mess: concentration, seasonality, basis risk, disputes, and execution risk.
| Mechanic | What It Does | Why You Should Care |
|---|---|---|
| Advance rate | Defines the percentage of eligible collateral that becomes availability. | Higher advance rates require tighter controls and stronger collateral quality. |
| Haircut | Discount applied to collateral value for volatility and liquidation risk. | Haircuts get worse when custody is weak or pricing is hard to defend. |
| Reserves | Availability reductions for known risk factors. | Reserves are where lenders “price” your weak spots without rewriting the whole facility. |
| Concentration limits | Caps exposure to a buyer, supplier, or commodity. | Stops one counterparty problem from blowing up the base. |
Controls That Make Lenders Comfortable
Controls are not a nice-to-have. They are the reason lenders offer revolving availability instead of one-off approvals.
- Inventory control: independent verification and controlled release under a defined process. Start with the CMA guide: Collateral Management Agreements in Trade Finance.
- Cash control: collections routed to controlled accounts, with sweeps and waterfall rules tied to borrowing base compliance.
- Document control: consistent document list, discrepancy rules, and release triggers that match the actual logistics.
- Audit and reporting cadence: base certificates, stock reports, aging reports, and exception logs that can be tested.
For broader structuring scope, see Trade Finance Structuring & Borrowing Base Design.
The Borrowing Base Certificate
The borrowing base certificate is the operational heartbeat of the facility. It is how the borrower proves eligibility, calculates availability, and stays inside covenants and reserves. Lenders care less about your pitch and more about whether your reporting is consistent, reconcilable, and timely.
If your team cannot produce clean certificates weekly or monthly, the facility becomes a constant exception process. Availability shrinks. Lender trust drops. Renewals get painful.
If you want the contract backbone that governs these mechanics, read Guide to Trade Finance Facility Agreements.
Common Facility Variants
Borrowing base facilities often sit alongside other tools. The goal is to match capital to the part of the cycle that is starving you.
- Inventory repo (title transfer): liquidity against warehoused stock where title transfer is acceptable. See Inventory Repo (Title Transfer).
- Structured trade finance advisory package: when the borrower needs the whole lender-ready pack and controlled outreach. See Trade Finance Structuring and Fundraising and Structured Trade Finance Advisory Services.
- Private placement takeout: when you want a stable hold lender rather than a syndicated bank line. See Private Placement Debt Advisory.
Timeline From Intake To Indicative Terms
Speed is not magic. It is preparedness. When the file is clean, cycles compress.
| Step | What Happens | What You Need Ready |
|---|---|---|
| 1. Intake and fit check | Confirm the trade model, collateral types, jurisdictions, and feasibility. | Flow summary, counterparties, indicative volumes, existing facilities. |
| 2. Base design | Define eligibility, advance rates, reserves, reporting cadence, and controls. | Contract samples, warehouse and logistics plan, collections routing proposal. |
| 3. Lender package | Produce lender-ready memo and data room structure. | Corporate docs, financials, trade history, KYC and ownership evidence. |
| 4. Term sheet process | Targeted outreach to suitable providers and manage term sheet iteration. | Responsiveness and willingness to accept realistic controls. |
If you want advisory support without guessing, see Trade Finance Consulting.
FAQ
What is the biggest reason borrowing base facilities fail?
Weak control and weak reporting. If inventory cannot be independently verified and cash cannot be captured, lenders either step back or cut advance rates to the point the facility stops being useful.
Do I need a collateral management agreement?
Not always, but if inventory is a primary driver of availability, independent control is often the cleanest solution. Start with this CMA guide.
How often does the borrowing base update?
It depends on lender policy and trade velocity. Weekly is common in tighter structures, monthly is common where controls and counterparties are strong and the cycle is slower.
Can in-transit goods be included?
Yes, when title documents, insurance, and documentary triggers are acceptable, and when the facility mechanics match how logistics actually works.
Can FG Capital Advisors provide direct lending?
No. FG Capital Advisors provides advisory and arrangement support on a best-efforts basis. Financing is provided by third-party capital providers under their own approvals and documentation.
What is the fastest way to get indicative terms?
Submit a clean summary, contracts, counterparties, and a proposed control plan via: Start Client Intake.
If you have recurring commodity flows and want a revolving facility that scales, submit your trade model and documents. We will revert with a scoped borrowing base approach and next steps.
Start Client IntakeDisclosure. This content is for informational purposes and does not constitute legal, tax, accounting, or financial advice. FG Capital Advisors is not a bank or lender and does not accept client money. Any support is provided on a best-efforts basis and remains subject to third-party approvals, diligence, compliance checks, and documentation.
