Asset-based lending (ABL) sizes a credit facility off your balance sheet's liquid collateral, not your cash flow — which makes it a fit for asset-heavy businesses that don't screen as well on a pure debt-service-coverage basis. The core mechanic is the borrowing base.
The basic formula
A borrowing base applies an advance rate to each eligible collateral category and sums them:
Borrowing base = (advance rate × eligible accounts receivable) + (advance rate × eligible inventory, at cost)
A common starting-point structure — the same one our own borrowing base calculator uses — is roughly 85% of eligible AR plus 50% of inventory at cost. Actual advance rates vary by lender, industry, and how clean your receivables and inventory reporting is; this is a reasonable planning estimate, not a specific lender's underwriting formula.
Why "eligible" is doing a lot of work
Not every dollar of AR or inventory counts. Lenders typically carve out (make "ineligible"):
- Receivables aged past a cutoff (commonly 90 days past due)
- Concentrations with a single customer above a threshold percentage of total AR
- Related-party or foreign receivables, depending on the lender
- Slow-moving, obsolete, or in-transit inventory
- Work-in-process inventory, which is harder to liquidate than raw materials or finished goods
Two businesses with identical balance-sheet totals can end up with meaningfully different borrowing bases once ineligibles are stripped out — a large customer concentration or a lot of aged receivables can shrink the usable base well below the headline AR number.
Where equipment fits (and doesn't)
Equipment is usually not included in the receivables-and-inventory borrowing base at all. Instead, it's typically valued separately at an estimated orderly liquidation value (OLV) — a conservative estimate of what it would fetch in a reasonably managed sale, commonly around 80% of market value — and financed through a separate equipment-secured facility rather than folded into the revolving ABL line. Our calculator shows this OLV estimate for reference, kept intentionally separate from the borrowing-base total.
Why this matters more than a single cash-flow ratio for some businesses
A DSCR-based approach asks "does your cash flow cover the payment?" A borrowing base asks "how much could a lender recover if it had to liquidate your collateral?" For a distribution, manufacturing, or inventory-heavy business with real assets but thin or lumpy EBITDA, borrowing-base capacity can be larger — and easier to qualify for — than a cash-flow lender would ever offer.
Get your full pre-qualification estimate and a BizyFi advisor can walk through what your actual eligible collateral looks like once ineligibles are applied.