For lenders who would like to secure Asset-Backed Financing, it’s crucial to understand the importance of maintaining a strong borrowing base report.
The borrowing base report shows how much a business can borrow based on the assets they’ve pledged as collateral. The borrowing base is dynamic, and its value changes together with its underlying assets. That’s why startups need to keep their assets’ data up to date on their borrowing base report and communicate any changes to their lender regularly.
Maintaining a healthy loan book is crucial because it will help them stay within their borrowing limits. The startup ecosystem also fosters a sense of trust between the borrower and the lender since, by being transparent and accountable, startups show that they are committed to making the partnership work.
To help businesses create an effective borrowing base, we recommend following these key steps:
Step 1: Determine Eligible Collateral
Defining key criteria to determine which assets qualify for funding, such as inventory, accounts receivable, real estate, or other relevant assets.
This step involves outlining the total eligible receivables defined in the legal agreement between both parties.
Step 2: Calculate the Collateral Value
This step involves calculating the eligible collateral value that the lender considers in the borrowing base calculation.
This value is usually adjusted to reflect any anticipated losses and excess concentration limits.
Step 3: Determine the Advance Rate
The third step involves determining how much the lender will fund based on the total asset value.
Step 4: Calculate the Borrowing Base
The final step is calculating the maximum amount the borrower can withdraw based on the eligible collateral value, which is calculated by multiplying the collateral value by the advance rate.
At Viola Credit, we understand the challenges startups face when it comes to building out their loan book. As a result, we work closely with our borrowers in order to establish an effective data tape and borrowing base that reflects their accounts receivables in an accurate manner.