A borrowing base certificate is the report a borrower gives an asset-based lender to show what the line's collateral supports. It starts from gross receivables and inventory, removes ineligible items, applies advance rates, deducts reserves and arrives at the borrowing base and excess availability. An officer signs it as true. It is usually due monthly, shortly after month-end, and moves to weekly or even daily when availability is thin, the business is growing fast or the lender has concerns. Lenders expect every figure on it to reconcile to the general ledger.
- What it is
- A signed report of collateral, eligibility, advance rates, reserves and availability
- Usual frequency
- Monthly, shortly after month-end
- When it speeds up
- Weekly or daily when availability is thin, at a trigger, or after exam findings
- Sent with it
- AR aging by customer, AP aging, inventory report if inventory is in the base
- Must tie to
- The general ledger's receivables, sales, cash and inventory accounts
What the certificate is
An asset-based line lets a business borrow against its receivables and, often, its inventory. The lender cannot watch that collateral every day, so the business reports it. The borrowing base certificate is that report: a one- or two-page form, usually the lender's own template, that walks from the total collateral on the books to the amount the business may borrow. It is the working document behind the borrowing base.
The certificate ends with a signature. An officer, usually the CFO, controller or owner, certifies that the information is true and complete and that the collateral meets the eligibility rules in the credit agreement. That signature is what gives the document teeth. A materially wrong certificate is typically an event of default in its own right, and where the owners have signed a validity guarantee, it can reach them personally.
The certificate, line by line
Templates differ, but almost all follow the same order. Each line has a source in the books and a way the lender checks it.
| Line | What it shows | Where it comes from | What the lender checks |
|---|---|---|---|
| Prior gross receivables | Ending receivables on the last certificate | The last certificate | That it matches what was reported |
| Plus: sales (invoicing) | New invoices issued in the period | Sales journal | Ties to revenue in the P&L for the period |
| Less: collections | Cash received against receivables | Cash receipts; lockbox reports | Ties to deposits in the lender's account |
| Less: credits and adjustments | Credit memos, discounts, write-offs, returns | AR sub-ledger | Feeds the lender's dilution measure |
| Ending gross receivables | Receivables at period-end | AR aging total | Equals the GL receivables control account |
| Less: ineligibles | Aged, cross-aged, over-concentration, contras, affiliates, foreign, government, disputed | Aging, customer list, AP aging for contras | Each category calculated per the agreement |
| Eligible receivables × advance rate | Receivables availability | Credit agreement | Rate as agreed; asset-based lenders typically advance 80% to 90% |
| Gross inventory, less ineligible inventory | Eligible inventory at cost | Perpetual inventory report | Ties to GL inventory; excludes slow-moving, consigned, in-transit, off-site without waiver |
| Eligible inventory × advance rate, capped | Inventory availability | Credit agreement and latest appraisal | Up to 85% of net orderly liquidation value, or roughly half of cost, within any sublimit |
| Less: reserves | Rent, taxes, dilution, deposits, bank products | Lender's reserve schedule | Current as notified |
| Borrowing base | What the collateral supports | Calculated | Arithmetic |
| Less: loans and letters of credit | What is already used | Lender's loan statement | Matches the lender's own balance |
| Excess availability | What can still be drawn | Calculated | Against every trigger in the agreement |
The top half, the receivables roll-forward, is where most lenders start reading. It proves the ending balance is not a number typed in but the result of real invoicing and real collections. The rules for the ineligible lines are in the agreement, and the most common ones are covered in eligible vs ineligible receivables, cross-aging, concentration limits and contra accounts. Receivables more than 90 days past invoice are typically ineligible.
How often it is due
The reporting schedule is set in the credit agreement, and it is usually tied to how much room the business has.
- Monthly is the default for a healthy facility: the certificate, the AR and AP agings and the inventory report, due a fixed number of days after month-end.
- Weekly applies when excess availability falls below a reporting threshold, during a seasonal peak, or for a business the lender is still getting to know. A weekly certificate often rolls receivables forward from the last month-end aging rather than producing a new aging each week.
- Daily reporting, usually of sales and collections only, comes with cash dominion or a business under close watch.
- On request: most agreements also let the lender ask for a certificate at any time, and require one with every request to borrow above a set amount.
The schedule usually goes back to monthly once availability has recovered for the period the agreement sets. It rarely changes on its own; the business has to show the recovery and ask.
Reconciling to the general ledger
The reconciliation is what lenders and field examiners test hardest. A field exam will pull the month-end certificate, the aging behind it and the trial balance, and look for differences. Each difference needs an explanation that can be shown.
| Tie-out | Example amount | Note |
|---|---|---|
| AR aging total (open invoices by customer) | 4,700 | Matches ending gross receivables on the certificate |
| Less: unapplied cash | (120) | Payments posted to the control account but not yet matched to invoices, so the invoices still show open |
| Less: credit memos dated in the month but issued after the aging was run | (40) | A timing difference the aging should not have |
| Plus: non-trade receivables in the control account | 80 | Employee advances and a vendor rebate receivable, which never belong in the aging |
| Equals: GL receivables control account | 4,620 | From the trial balance |
Each reconciling item has a treatment. Unapplied cash should be matched before the aging is run; otherwise paid invoices sit in the old buckets, overstate gross receivables and can make a good customer look cross-aged. Late credit memos mean the aging was run before the month was closed, which overstates collateral; run it after. Non-trade receivables are never eligible and belong outside the aging, identified in the reconciliation. Customer credit balances should be shown separately rather than netted against invoices, because lenders reclassify them. Sales in the roll-forward should equal revenue in the period's P&L, less any cash sales; collections should equal deposits in the collection account.
Inventory follows the same idea. The perpetual inventory report on the certificate should equal the inventory balance on the balance sheet, with any capitalized overhead, reserves for obsolescence and in-transit goods identified. Businesses that book inventory adjustments only at year-end should expect a field examiner to find a gap, and a reserve to follow.
A certificate that ties to the ledger every month is the cheapest way to avoid new reserves, weekly reporting and awkward field exams.
Where certificates go wrong
Most errors are process errors, not dishonesty, but the lender cannot tell the difference from the outside. The usual ones: an aging run on a different date from the ledger close; invoices booked before goods ship; credit memos issued after month-end for sales in the month; cross-aged customers left in; a concentration cap applied to gross rather than eligible receivables; a spreadsheet formula that stopped updating a row. The guide to preparing a certificate covers building one that avoids them.
If you find an error after sending a certificate, tell the lender and send a corrected one. Lenders deal with corrections all the time. What they do not forgive is finding the error themselves at a field exam, particularly if it overstated availability.
Before the first certificate
The first certificate is usually prepared at closing, from the collateral the lender has just examined. Lenders reviewing a new asset-based line ask for an AR aging by customer with days outstanding, an AP aging, the balance sheet, the P&L and year-to-date P&L, a debt schedule showing existing liens, an inventory report if inventory is in the base, and often bank statements and tax returns. The same schedules become the monthly backup to the certificate, so a business that can produce clean versions of them quickly is most of the way to a clean certificate.
Transparent reads the aging and ledger the way a field examiner would before a lender does, so eligibility surprises surface before the term sheet rather than after closing. Its book holds 235 lenders writing asset-based loans and lines; see how we underwrite.
Common questions
- Who signs the borrowing base certificate?
- An officer named in the credit agreement, usually the CFO, controller or an owner. The signature certifies the figures are true and the collateral meets the eligibility rules, so the signer should understand how each line was prepared.
- Is a weekly certificate as much work as a monthly one?
- Usually less. Weekly certificates often roll receivables forward from the last month-end using the week's sales and collections, with a full new aging only at month-end. The reconciliation discipline is the same.
- Can I borrow more than the last certificate shows if sales have grown since?
- Only by submitting a new certificate. Many agreements let you deliver an updated certificate at any time to increase availability, and require one with any large borrowing request.
- What happens if the certificate overstated availability?
- If you were borrowing more than the corrected base supports, you are in an overadvance and usually must repay the excess. A materially wrong certificate can also be an event of default. Correct it with the lender as soon as you find it.
- Does the certificate replace the monthly financial statements?
- No. Most asset-based lenders want monthly financial statements and a compliance certificate as well. The borrowing base certificate reports collateral; the financials report performance.