why lenders use a borrowing base
lenders feel more comfortable making loans rooted in borrowing bases since those loans are made against specific sets of assets furthermore the borrowing base can be adjusted downward to protect the lender for example if the value of the collateral drops the credit limit declines along with it on the other hand should the value of the collateral increase the borrowing base will likewise escalate up to a predetermined limit the mechanicsthe borrower must also provide the lender with certain information used to determine the borrowing base including data on sales collections and inventory with middle market and large asset based loans borrowers are often required to periodically furnish lenders with certificates that disclose various details of the companies business dealings for example the certificate might itemize a company s eligible receivables if the borrowing base is determined by that consideration lenders may conduct regular investigations of a company to check up on the borrower s business operations as part of this initiative lenders may dispatch appraisers to value the collateral used in calculating the borrowing base to determine if there are any significant changes to the underlying worth of the items in question example of a borrowing basecabot oil gas corporation did not have any borrowings outstanding under its revolving credit facility as of march 31 2016 since then on the first day of every april its borrowing base is annually redetermined although the lender is at liberty to request a redetermination whenever cabot acquires or sells oil and gas properties on april 19 2016 the borrowing base was lowered from 3 4 billion to 3 2 billion 1 