Excess availability is what you could still borrow today on an asset-based line: the lower of the commitment and the borrowing base, minus loans outstanding, letters of credit issued and any reserves not already in the base. It, not the headline commitment, is the number the lender and the CFO watch, because loan agreements use it as a trigger. Falling below set thresholds can switch on a fixed charge coverage covenant, cash dominion or weekly reporting, and many deals require a minimum at closing. A line of 10,000 with availability of 1,500 is, in practice, a line of 1,500.
- Formula
- Lower of commitment and borrowing base, minus loans, letters of credit and reserves
- Why it matters
- It is the usable size of the line, and the agreement's main trigger
- What it can trigger
- Springing covenants, cash dominion, more frequent reporting, limits on payments
- At closing
- Many facilities require a minimum excess availability to fund
- How to manage it
- Forecast it monthly alongside the cash forecast
The calculation
Every asset-based agreement defines excess availability in its own words, but the core is the same:
Excess availability = the lesser of (the commitment) and (the borrowing base) − revolving loans outstanding − letters of credit issued − reserves not already deducted in the base.
The borrowing base is eligible receivables and inventory multiplied by their advance rates, typically 80% to 90% of eligible receivables and up to 85% of the net orderly liquidation value of inventory, less availability reserves. Letters of credit count because the lender must fund them if they are drawn; see letters of credit under a revolver. Some agreements go further and deduct payables that are past their normal terms, or book overdrafts, on the view that those are claims the line will have to fund soon.
Two related terms appear in the same documents. Suppressed availability is borrowing base above the commitment: collateral you have but cannot borrow against, because the line is capped. It does not count toward excess availability, though it tells the lender its cushion is larger than the formula shows. Liquidity, in agreements that use it, usually means excess availability plus unrestricted cash, and some covenants test that instead.
A line of 10,000 that is really a line of 1,500
Take a manufacturer with a commitment of 10,000. Figures are illustrative, in thousands.
| Step | Amount | What it means |
|---|---|---|
| Commitment | 10,000 | The number announced at closing |
| Eligible receivables availability | 5,600 | After ineligibles and the advance rate |
| Eligible inventory availability | 3,100 | After the appraisal, the advance rate and the inventory sublimit |
| Less: reserves in the base | (500) | A rent reserve and a dilution reserve |
| Borrowing base | 8,200 | Below the commitment, so the base governs |
| Lesser of commitment and base | 8,200 | |
| Less: revolving loans outstanding | (6,000) | Drawn to fund payroll and suppliers |
| Less: letters of credit issued | (700) | Standby letters of credit to a supplier and a landlord |
| Excess availability | 1,500 | What the company can actually draw today |
The commitment says 10,000. The collateral supports 8,200. After what is already drawn and the letters of credit, 1,500 is left. If this company's loan agreement sets a springing covenant or a dominion trigger anywhere near 1,500, the company is one slow month of collections away from it, while the term sheet still says 10,000.
Plan the business on excess availability, never on the commitment. The commitment is a ceiling; availability is the room under it.
What excess availability triggers
Asset-based agreements are built around availability. Instead of testing earnings every quarter, as a cash-flow line does, they give the borrower freedom while availability is healthy and tighten control when it falls. The thresholds are usually expressed as the greater of a fixed amount and a share of the line, and they are negotiated.
| Provision | What happens when availability falls below the threshold | Why the lender uses it |
|---|---|---|
| Springing fixed charge coverage covenant | A fixed charge coverage ratio is tested, often on the last twelve months, and must be met | Low availability suggests the collateral alone may not protect the loan; see springing covenants |
| Springing cash dominion | Collections sweep daily against the loan, and the borrower draws back what it needs | Control of cash when the cushion is thin; see cash dominion vs springing dominion |
| Reporting frequency | Borrowing base certificates move from monthly to weekly | Closer visibility of a shrinking cushion |
| Field exams and appraisals | The lender may run more of them at the borrower's cost | Verifying the collateral the line now depends on |
| Restricted payments | Distributions, earnouts, seller note payments or acquisitions are allowed only if availability stays above a level, before and after | Cash should not leave while the line is tight |
| Minimum availability covenant | A default, if availability drops below a hard floor | Used by some lenders in place of any financial covenant |
Most triggers also have a cure: once availability stays above the threshold for a set number of consecutive days, the covenant or dominion switches off again. Read how long that period is, because it decides how quickly you regain control after a tight month. For covenants generally, see the covenants on a line of credit.
At closing: the minimum availability condition
Many asset-based facilities will not fund unless the borrower has a minimum excess availability on the closing date, after paying off the old lender, funding closing costs and, in an acquisition, paying the seller. The point is to stop a company starting life under the new lender already at its limit.
This is where deals come apart late. A refinance sized on a borrowing base estimate from months earlier closes into a lower base after the field exam, or a purchase price adjustment uses up availability, and the closing condition fails. Estimate closing-date availability from current collateral, not the term sheet, and check it again after the field exam. In an acquisition, the working capital peg and the amount of working capital at close feed straight into it; using a revolver in an acquisition covers the rest.
Forecasting availability month by month
Availability moves for reasons that have nothing to do with how much you borrow. Receivables age past the cut-off and fall out of the base. A large customer grows past the concentration cap. Inventory builds ahead of a season but is appraised at liquidation value. A reserve appears after a field exam. A company that forecasts only cash will be surprised; one that forecasts availability alongside cash sees the tight months coming.
A workable forecast rolls the borrowing base forward each month from the operating plan:
- Project receivables from sales and collection patterns, then apply the same ineligibles as the certificate: aged invoices, cross-aged customers, the concentration cap, affiliates. Eligible vs ineligible receivables lists them.
- Project inventory by category and apply the appraisal's recovery rates and the sublimit. How lenders advance against inventory explains why a large build adds less availability than its cost suggests.
- Carry forward known reserves, and add any you expect, such as a rent reserve for a new leased site.
- Deduct forecast loan balances from the cash forecast and any letters of credit.
- Compare the result with every trigger in the agreement, month by month, and flag the months that come within reach.
Seasonal businesses need this most. Their borrowing peaks just as their collateral is least liquid: inventory is built, receivables have not yet been generated. How a seasonal line works covers the pattern. If the forecast shows a month that crosses a trigger, raise it with the lender early: a temporary over-advance, a seasonal change to advance rates or a timing change in a planned payment is far easier to agree ahead of time than after the fact. See what an over-advance is.
Raising availability, and where the lender fits in
The levers are the parts of the formula. Collect aged receivables before they cross the cut-off, and resolve disputes and credits that feed dilution. Get landlord and warehouse waivers to remove rent and bailee reserves. Clear obsolete stock that the appraisal values at little. Negotiate the concentration cap for a strong customer. And negotiate the triggers themselves at the term sheet: a lower threshold, a longer cure, a covenant that springs on availability over several days rather than one.
Those terms vary more between lenders than pricing does. Of the 1,800+ lenders in Transparent's book, 235 write asset-based loans and lines. Transparent builds the full lender package, including the financing model, in a day once the documents are in, and for an asset-based line the question worth putting to every offer is the one on this page: how much of the line the company can actually use, and how close it will run to each trigger. See the package and bank vs non-bank ABL.
Common questions
- Is excess availability the same as the unused commitment?
- No. The unused commitment is the commitment minus what is drawn. Excess availability starts from the lower of the commitment and the borrowing base, so when the base is below the commitment, availability is smaller than the unused commitment.
- Do letters of credit reduce my availability?
- Yes. A letter of credit issued under the line reduces excess availability by its face amount, because the lender must fund it if the beneficiary draws, even though no loan is outstanding yet.
- What happens if excess availability goes negative?
- Then loans and letters of credit exceed what the borrowing base supports, which is an over-advance. Most agreements require the excess to be repaid at once unless the lender has agreed to a temporary over-advance beforehand.
- Does cash in the bank count as availability?
- Not in the standard definition. Some agreements test liquidity, which adds unrestricted cash to excess availability, and some let cash held at the lender support the base. Read the definitions.
- How often should I calculate excess availability?
- At least with every borrowing base certificate, and forecast it monthly for the year ahead. When availability is close to a trigger, track it weekly.