Borrowing base certificates, explained.

What a borrowing base certificate is, and why the lender adds it up again

One borrowing base, from agreement to advance, in five steps

1. The credit agreement sets the formulaWhich invoices and goods count, the advance rates, the reserves, how often the certificate comes in. For Brennick: 85% of eligible receivables, 60% of eligible inventory cost, a $25 million line.
2. The borrower sends a certificate and its reportsBrennick's CFO signs certificate 41 as of September 30, with the agings, trial balance, stock report, lockbox statement and shipping log.
3. The lender checks every lineAdds it up (foots it), ties it to the aging, the general ledger and the bank, applies every eligibility rule, compares it with last month. This is where the $1.28 million is found, or funded.
4. Someone decides the advance and signsFund what is truly available, hold the rest, ask for a corrected certificate, add a reserve or order a field exam.
5. The next certificate comes inWeekly or monthly, for the life of the line. Each one starts the check again.

Step 3 is the subject of this guide. The company, the bank, the people and the figures in this example are fictional.

Borrowing base certificate facts that surprise lenders

Borrowing base, ineligible, advance rate and excess availability

Fourteen terms are defined in the one-page summary.

Reading a certificate from gross receivables down to excess availability

In shortA certificate is a short subtraction. Start with all the receivables, take out the ones that do not count, multiply by the advance rate. Do the same for inventory. Add the two, take off reserves, and you have the borrowing base. Take off what is already borrowed and what letters of credit could draw, and you have excess availability. Each line rests on a report the borrower attaches.

Lenders design their own forms, but the order is close to universal, because it follows the formula in the credit agreement. The Federal Reserve's examination manual describes the inventory half the same way: the certificate shows the classes of inventory, then "the different types of ineligible inventory, which will be subtracted to give the amount of eligible inventory. Finally, the advance rates are applied".5 Here is Brennick's certificate 41 as its CFO signed it.

Who writes the rules a certificate is checked against, and what changed by October 2026

In shortNo federal rule prints an advance rate or a list of ineligibles that every lender must use. The credit agreement is the rulebook. Bank examiners judge whether a lender's agreements, monitoring and controls are prudent, using the OCC's Asset-Based Lending booklet and the Federal Reserve's examination manual. Article 9 of the Uniform Commercial Code decides who holds the collateral. Three 2025–2026 changes sit around the work: new model risk guidance, a new OCC lending booklet, and proposed new third-party guidance.

The receivables and goods a lender refuses to count, and the document that proves each one

In shortAn ineligible is collateral the lender still holds but will not lend against, because it may never turn into cash, or turn into less cash than it shows. The OCC and the Federal Reserve list the usual ones. Most can be proved only by a document other than the aging: the shipping log, last month's aging, the payables aging, the customer master file, the bank statement.

To count at all, the OCC says, a receivable "must be generated in the ordinary course of business and be subject to a perfected first-priority security interest in favor of the bank". Inventory "must be salable and subject to a perfected first-priority interest".1 Then the agreement removes classes of each. These are the common ones, with the reasons the regulators give.

The aging can show what is old, big or owed by a name on a list. It cannot show that an invoice was issued before the goods shipped, that it replaced an older one, or that the customer already paid it into another account. Those take a second document, which is why a certificate review that reads only the aging misses the ineligibles that matter most.

Six calculations that decide how much of an invoice or a pallet counts

In shortAge is counted from the invoice date. Cross-aging moves a whole customer when a share is past due. Concentration takes out only the part above the limit. A contra takes out the smaller of what the customer owes and what the borrower owes it. Dilution compares credits with sales. Inventory takes the lesser of a rate on cost and a rate on appraised liquidation value. Here is each one, worked on Brennick's September figures.

1 · Age from the invoice date, at three times the terms

The OCC: "Normally, an account is considered ineligible collateral when it is past due by three times the terms, e.g., 90 days for 30-day terms and 21 days for seven-day terms".1 The Federal Reserve explains why the count runs from the invoice date: it "prevents a borrower from reducing the volume of ineligible delinquent accounts by giving dated terms", that is, by lengthening a customer's payment terms on paper.5

2 · Cross-aging: when half is late, all of it goes

The Fed's example: "if a borrower's customer owes payment for ten invoices, of which six are delinquent, all ten would be considered ineligible".5 Lakemont Tractor owes Brennick $362,900, and $188,700 of it is over 90 days: 52.0%. Brennick's agreement uses 50%. The certificate took out the $188,700 with the other over-90 invoices and kept the current $174,200. Under the rule, that $174,200 goes too, and availability falls by $148,070 at 85%.

3 · Concentration: only the part above the limit

A customer over the limit stays in the base up to the limit. Brennick's agreement caps any one customer at 20% of receivables. Ulvane Agricultural Machinery owes $3,417,482, 23.0% of $14,862,410. Twenty percent of gross receivables is $2,972,482, so $445,000 comes out, $378,250 of availability at 85%. Agreements differ on the denominator: some measure against gross receivables, as this one does, others against eligible receivables, which gives a larger excess. Use the agreement's own definition every time.

4 · Contra: the smaller of the two debts

Halvern Steel Service owes Brennick $136,400 for parts and is owed $412,900 by Brennick for steel, according to the payables aging. Halvern could set off the whole $136,400, so the whole $136,400 is ineligible: the lesser of the receivable and the payable. Had Brennick owed Halvern $50,000, only $50,000 would come out. This is where the payables aging earns its place in the package: a contra is invisible on the receivable side.

5 · Dilution: credits against sales

Dilution is what shrinks a receivable before it is paid: "Returns and allowances, disputes, bad debts, and other credit offsets". The OCC says it "varies by industry but is usually expected to be 5 percent or less of receivables".1 A common measure is non-cash credits divided by sales over a trailing period. The OCC notes that effective advance rates "are often lower after subtracting historic dilution", and lists dilution among the reasons for reserves.1

In September Brennick issued $463,690 of credits on $14,866,550 of sales: 3.1%. Without the eleven credit memos that canceled Dunmore's June invoices, it was 1.2%. The monthly rate looked healthy; the eleven credit memos that lifted it from 1.2% were the signal.

6 · Inventory: the lesser of cost and liquidation value

The OCC: a bank "typically advances up to 65 percent of the book value of eligible inventory, or 80 percent of the NOLV", the net orderly liquidation value an appraiser expects from a sale over a normal period, after costs.1 Many agreements take whichever is lower. Brennick's appraisal puts NOLV at 74.3% of cost; 85% of that is 63.2% of cost, above the agreement's 60% of cost, so 60% binds.

Tying the certificate to the aging, the general ledger and the bank

In shortA certificate is only as good as the reports behind it, and the reports are only as good as their agreement with each other. Four ties do most of the work: the certificate to the aging, the aging to the general ledger control account, the general ledger to a roll-forward of sales, credits and collections, and collections to the deposits in the account the lender controls. Inventory ties to its own general ledger account and to the appraisal. The loan lines tie to the lender's own system.

The Federal Reserve lists what an audit of an ABL borrower should cover, beginning with "verification that the information on the borrowing-base certificate reconciles to the borrower's books" and including "verification of submitted aging reports" and "review of bank reconciliations".5 The OCC's verification procedures add: "Reconcile accounts receivable schedules and customer remittances to the lockbox account statements to ensure that all payments are being made to the account as required".1 A certificate check does a smaller version of the same thing every period.

What each gap usually means

Eligible receivables, step by step

From borrowing base to excess availability: reserves, letters of credit, triggers and over-advances

In shortReserves are deductions the lender sets for risks the ineligibles miss: rent at a leased site without a landlord waiver, dilution, liens that could come first. Letters of credit count as drawn. Excess availability is what is left, and many agreements watch it: when it falls below a threshold, reporting tightens and tests or cash controls spring into force. An advance above the base is an over-advance and needs its own approval.

"Most ABL agreements grant the lender the right to establish reserves against the borrowing base", says the OCC, to cover "the costs required to liquidate the collateral, the possible dilution of accounts, inventory obsolescence, or other factors".1 The Fed adds the liens that can come ahead of the lender: a landlord's lien on goods in a leased building, a supplier's purchase-money interest, and the "Secret lien", a tax lien.5

Brennick's Fort Wayne warehouse is leased with no landlord waiver, so the agreement reserves three months' rent, 3 × $62,000 = $186,000.

Triggers that turn on availability

Excess availability is the number ABL agreements watch most. The OCC notes that covenants "commonly focus on excess availability" and describes springing arrangements, in which the lender sweeps all collections to pay down the loan (cash dominion) only after a threshold is crossed: "cash dominion may not be required unless excess availability falls below an established threshold".1 For retailers it reports excess availability covenants that "typically require that 10 percent to 15 percent of the borrowing base remain available".1 The Fed calls a borrower's excess availability "an excellent indicator of whether it has the capacity to service its loan".5

Brennick's agreement has two triggers at $2,000,000: weekly certificates, and a fixed charge coverage test, which compares cash flow with fixed payments such as interest, principal and rent, and springs into force. As certified, availability sits $94,528 above the line. Recalculated, it is $815,000 and both triggers are on. On the last quarterly compliance certificate the test reads 1.12x against a 1.00x minimum, so it passes. If Brennick draws all $815,000, its availability is zero.

Over-advances

An unapproved over-advance, the OCC writes, "may indicate a serious deficiency in the administration of the loan or inaccurate reporting by the borrower", and the bank "should immediately develop a strategic response".1 The certificate check is where an over-advance either gets approved on purpose or is avoided.

Seven falsified borrowing base cases from court and agency records, and what each one hid

In shortThe OCC says "Fraud is a frequent cause of loss in ABL".1 The cases that reach the record repeat a short list of moves: invoices issued before the goods shipped, credits for returns held back, receivables overstated outright, inventory relabeled, the same collateral pledged to two lenders, delinquency fields edited. Most of them foot. Most were found by comparing the certificate with something the borrower did not write.

Two things stand out. First, an officer signed each certificate as true and complete, in the words section 09 quotes, and the signature did not make it true.3 Second, the gaps were visible in records the borrower did not control, or did not control fully: shipping documents, bank deposits, a customer's own books, another lender's collateral list. In Carboni it was the lender's February 1994 audit. At Tricolor, the complaint quotes the CEO before a lender audit: "they will definitely check for dups".2,23

The trade's own count

In February 2026 the Secured Finance Network (SFNet), the trade body for asset-based lenders and factors, published a fraud task force report. It surveyed 29 member organizations and analyzed 26 real cases.19

The report's first operational advice is to "Triangulate: Validate Borrowing Base Certificates and Invoices against Cash Receipts and Physical Counts", and its red flags include "'Round number' invoices", "Small, same dollar-sized invoices to the same debtor", credit memos and shipping documents dated after the invoices, and customers that are "newly formed entities".19 Its summary of the report puts the principle in four words: "lenders must verify, then fund".24

What the borrower promises when it signs a certificate, and how a lender tells a slip from a scheme

In shortThe signature makes the certificate a written statement by an officer: true, correct and complete in all material respects, prepared under the agreement, often with no default outstanding. A material misstatement is usually an event of default. Most differences a lender finds are mistakes, and the agreement handles them with a corrected certificate. The lender's job is evidence, line by line, so that whoever reads the file later can tell which was which.

Forms vary, but the promises recur. The officer certifies that the figures are accurate and drawn from the books, that the receivables and inventory listed as eligible meet the agreement's definitions, that the lender holds its lien, and that no default exists.

In the agreement the Ninth Circuit read in Berger, the certifying officer had to "certify in writing that the information it contained was true, correct, and complete in all material respects", either the CEO or the CFO had to "supervise the preparation of each Borrowing Certificate", and "Any materially false or misleading representation made in the Borrowing Certificates was identified as an event of default".3

What bank examiners look for in a lender's certificate review

In shortExaminers test the bank's process for checking certificates: how fast agings and stock reports arrive, how often eligibility is tested, how quickly over-advances are caught, whether duties are separated, whether the systems produce timely and accurate reports, and whether the reconciliations and field audits are actually done. A certificate file that shows each step, with its sources, answers most of those questions.

The OCC's examination procedures ask examiners to "Determine how borrowing base certificates are reviewed for accuracy" and to assess "the timeliness of receipt of supporting collateral reports, such as agings and inventory reports", "the frequency of reviews to ensure compliance with eligibility requirements", "the frequency of periodic audits" and "the timeliness of identification of over-advances, including those created when delinquent receivables are eliminated".1

Elsewhere the booklet asks for "a distinct separation of administrative duties between employees responsible for credit approval, collateral/cash proceeds control, field audits, and portfolio management", and for management information systems that "identify over-advances and changes in borrowing patterns or collateral quality".1

The Fed's audit list, which a period check can borrow

• "verification that the information on the borrowing-base certificate reconciles to the borrower's books";5
• "review of concentrations of accounts" and of "trends in accounts receivable, accounts payable, inventory, sales, and costs of goods sold";5
• "review of the control of cash proceeds" and "determination that the general ledger is regularly posted";5
• "verification of submitted aging reports" and "review of bank reconciliations and canceled checks";5
• direct confirmation "on a positive basis", "before the initial lending arrangement and periodically thereafter".5

The Fed expects audits "several times a year" and quarterly for satisfactory borrowers; the OCC says "often quarterly but more frequently if risk dictates".5,1 Between audits, the certificate check is the only look at the collateral that the lender gets.

Asset-based lending in 2026: commitments, usage and credit quality in the industry's own survey

In shortBank ABL commitments grew 2.9% in the year to mid-2026.25 Recent bank respondents in SFNet's survey report $366.9 billion of commitments and $147.2 billion outstanding, with about 40% of lines in use; non-bank lenders draw more of theirs. Credit quality at banks is better than its long-run average. Industry leaders see fraud rising in the market more than in their own books.

No regulator counts how many borrowing base certificates US lenders review, how long each takes or how many are wrong. SFNet's index covers its respondents only, and its bank figures come from "recent bank respondents".25 Your own portfolio is the number that matters: borrowers, reporting frequency and certificates a year.

Software that recalculates certificates, the April 2026 model guidance, and what still needs a confirmation, a count or a credit officer

In shortSoftware can read a certificate and its reports in any layout, recalculate every line, test every customer and invoice against the agreement, compare this period's aging with the last one and show each difference with its source. The recalculation is arithmetic and fixed rules, which the April 2026 model guidance places outside its definition of a model. Reading figures out of documents with AI may sit outside its scope altogether, which leaves the controls to the bank's own framework and its third-party program. Evidence the borrower did not write still comes from banks, shipping records, confirmations and physical counts.

The OCC saw this coming in 2014. It wrote that tracking ABL collateral "can be a manual, time-intensive process prone to human error and fraud", that automated monitoring systems can bring "lower losses from credit risk and fraud" and "reduced administrative costs" when "properly implemented".1 It added that "Most systems have the ability to analyze the financials against the bank's borrowing base formula and calculate the current borrowing availability".1

What has changed since is the reading: documents that once had to be keyed or mapped by hand can now be read directly, and every customer can be tested instead of a sample.

The 2026 model risk guidance defines a model as "a complex quantitative method, system, or approach that applies statistical, economic, or financial theories to process input data into quantitative estimates" and excludes "simple arithmetic calculations, such as those found within spreadsheets, as well as deterministic rulebased processes".8

A footnote puts generative AI, and AI that acts on its own, outside its scope, adding that a bank's own risk management "should guide the determination of appropriate governance and controls" for them.8 The Fed expects the guidance to be "most relevant to banking organizations with over $30 billion in total assets".8,15,16

What software cannot know

• Whether the goods exist. A fabricated aging that ties to a fabricated general ledger still ties. SFNet's advice for inventory-heavy deals: "Mandate physical verification", "do not rely solely on documentation".19
• Whether a customer agrees it owes the money. Only a confirmation from the customer, or its payment, says so.5
• Whether a reserve, a waiver or an over-advance is wise. Those are credit decisions, and the OCC wants over-advances approved under the bank's loan policy.1
• Whether the bank stays responsible. It does: third-party use "does not diminish or remove" a bank's responsibilities.7

The proposed replacement of the third-party guidance, published September 15, 2026, is open for comment until November 16, 2026.10 Until a final version appears, the 2023 guidance applies.

Who checks a certificate today, in what order, and where the analyst's day goes

In shortA collateral analyst works the certificate, a portfolio manager owns the credit and its reserves, a credit officer approves anything unusual, loan operations books the advance, and field examiners test the books a few times a year. Most of the analyst's hours go to tying reports together and testing eligibility. Teams do it in spreadsheets, in ABL software, or with an outside exam firm for the periodic test.

Collateral analyst, portfolio manager, credit officer and the borrower's CFO

Four people before a certificate's advance moves

Where a certificate's working day goes

The day gets longer when certificates are weekly, when a borrower has several locations or many small customers, and when last period's aging has to be found and compared by hand. Many teams test eligibility on the largest customers and leave the tail to the field exam, which the Fed expects "several times a year".5

Spreadsheets, borrowing base systems or field exam firms

Certificate 41, from Thursday's upload to Monday's co-signed advance

In shortThis is the example from the top of the page, inside the product. Renée Okafor, the collateral analyst, opens Brennick's certificate as a bridge from gross collateral to availability, rebuilds it from the borrower's own reports, sees six items the certificate left in, opens the trial balance behind the first one, and approves $815,000 of the $1,150,000 asked. Martin Halloran, the portfolio manager, co-signs because the differences exceed $250,000.

1

The certificate as Brennick signed it

Monday morning Renée lands on certificate 41, drawn as a bridge: gross receivables of $14,862,410 stepping down by the three ineligibles Brennick deducted, then the 85% advance rate. The dark band says what the borrower certified: $2,094,528 of excess availability, enough for the $1,150,000 asked and $94,528 above the $2,000,000 line where weekly reporting starts.

The panel on the right shows what is behind the first bar. The aging matches certificate line 1. The general ledger and the lockbox are "not yet compared".

2

Rebuilt from the reports: six red steps

Renée presses "Rebuild from the reports". The agents read the seven documents, 412 customers, 3,906 invoices and 8,214 stock items, and each ineligible the certificate left in lands as its own red step, marked "not on the certificate": billed before shipment, re-dated, concentration, contra, cross-aged, and on the inventory view, goods sold but still in stock.

The last one is Lakemont Tractor: 52% of its balance is over 90 days, so the whole balance goes, $174,200 more. The panel links the aging and the agreement's 50% clause.

3

The first bar, opened at the line

Renée clicks gross receivables and opens the trial balance. Account 1200, receivables, trade: $14,618,960, highlighted. The aging totals $14,862,410. The difference, $243,450, is exactly the three Corwell Agricultural Equipment invoices dated September 29 and 30 that the shipping log shows leaving on October 6.

4

Excess availability, rebuilt: $815,000

The availability view adds receivable and inventory availability, takes off the $186,000 rent reserve for the Fort Wayne warehouse, the $15,213,340 revolver and the $600,000 of letters of credit. The borrowing base is $16,628,340 and excess availability $815,000. A dashed marker shows where the certificate put it. The footer counts it: six of six steps not on the certificate, $1,279,528 of availability.

5

Fund $815,000, hold $335,000, two signatures

The decision screen walks from $2,094,528 down to $815,000, one step per difference, each at its advance rate and linked to its certificate line. Renée approves $815,000 with the meaning of her signature, "Tied out — fund to recalculated availability", and her password. The differences exceed $250,000, so it goes to Martin Halloran, who co-signs on his phone two minutes later. The conditions ask for a corrected certificate, move Brennick to weekly certificates and note that the fixed charge coverage test now applies and passes at 1.12x.

Loan operations books the advance that morning. October 12, 2026 is Columbus Day, a Federal Reserve holiday when Fedwire is closed, so the funds go out on the next business day. The notice to the CFO lists all six differences.

In the sample data the agents finish in 1 minute 52 seconds and Renée's review takes 38 minutes, against about a day by hand, which is the solution's own estimate. Measure both on your own certificates.

Every other screen in the review, from the cycle's queue to the approval limits

In shortOne certificate is the story. These screens show the rest: the queue for the cycle, the tie-out run and its differences, all 23 certificate lines side by side, the re-dated invoices against the August aging, the receivables ties and customers, inventory by location, the signature, the conditions, a borrower over twelve months, and the facility's rules and approval limits.

Select any screen to open it larger. The bank, borrower, customers, people and figures are fictional. Clause numbers on the screens belong to the fictional credit agreement.

Six agents tie out and test; the analyst, the portfolio manager and the credit officer sign

In shortEach agent has one job and limits it does not cross. None of them changes a figure the borrower certified, changes a rule or an advance rate, calls a borrower dishonest, approves an advance or moves money. The collateral analyst decides; above $250,000 of differences the portfolio manager co-signs; an over-advance needs the credit officer and the portfolio manager.

Six agents read, tie out and test each certificate

Analyst, portfolio manager and credit officer: who signs an advance

Signatures record the name, the decision, what it means and the time. Agent steps and human decisions are kept apart on the activity record, every figure links to its document and line, and the record goes to the field examiner's workpapers. The borrower's figures stay as certified; each difference sits beside them.

Renée Okafor's certificate desk and Brennick's CFO

The seven reports a borrower sends, and the rebuilt certificate and signed advance that come back

In shortIt reads the reports borrowers already send, applies each facility's own rules, and leaves behind a recalculated certificate with every difference tied to its source line, ineligibles by reason, the advance decision with its signatures and conditions, and a drafted notice to the borrower. The loan system stays the system of record.

Loan system, portal, lockbox and lien searches to connect

For each, check whether it has an API, a file feed or only screens, and who owns it.

Your borrowers' reports and credit agreements, used as they are

Every figure sourced, certified figures untouched, people decide

Money advanced against collateral that is not there, and the analyst days spent looking for it

In shortStart from your own numbers. No regulator or study publishes how long a certificate check takes or how often certificates are wrong. Three published figures frame the question: what an analyst hour costs, what false certificates have cost lenders in cases that reached court, and how much of an ABL line borrowers draw.

Time your own certificate reviews and missed ineligibles

Advances against nothing, unseen triggers and exam findings

Pricing the return: certificates a year, hours saved on each, and your break-even

In shortPut in your own numbers. The calculator starts from a published analyst wage and asks for the rest: certificates a year, hours each takes now and after, and what the tool and your testing cost a year. The larger value, availability you stop funding against ineligible collateral, has no default because it depends on your book.

Differences already tied, every customer tested every period

Price certificate rebuilding on your own borrowers

A desk with twenty borrowers, seven of them weekly, checks about 520 certificates a year and breaks even in the chart's first two rows, at 7.25 or 4 hours saved. A desk with six monthly borrowers checks 72 and does not, on time alone; its case rests on the availability it stops funding, which it should measure before buying anything.

A readiness score for certificate review: written rules, borrower reports, findings and an examiner's test

In shortPick the answer closest to your desk today. Eight questions score 0 to 2; the last is for reflection. The meter adds your score as you go, and each question says why it matters and what a strong answer sounds like.

From five timed certificates to a same-morning answer

Sixteen vendor questions on reading, tie-outs, re-dated invoices and planted-error tests

In shortAsk every vendor the same questions, us included. The answers show what the tool reads, whether it tests every invoice, what it compares with, whose rules it applies, what evidence you keep, and how you would measure it on your own certificates.

We found no published independent test of any borrowing base vendor's accuracy, as of October 2026. A planted-error test on your own certificates is the fairest comparison, and the same test measures your current process.

A ten-week pilot: rebuild certificates you already funded, plant known errors, then run live

In shortMeasure your current checks, recalculate certificates you have already funded, plant a few known errors, then run live certificates in parallel and decide on three numbers. None of these steps commits you to a vendor.

1. Time five certificates by step, one weekly and four monthly. That is your baseline.
2. Write each pilot facility's rules on one page: eligibility, rates, reserves, triggers, approval limits, from the agreement and its amendments.
3. Pick five to ten borrowers and gather last quarter's certificates and reports. Copy three certificates and plant known errors: a pre-billed invoice, a re-dated one, a contra.
4. Recalculate the quarter and compare with what you funded; then run live certificates in parallel for four weeks, with your analysts deciding every advance.
5. Decide with three numbers: catches by ineligible type, false alarms on clean certificates, and analyst minutes to a decided advance.

Catches by ineligible type, false alarms and availability removed

How to calculate a borrowing base, advance rates, ineligibles and over-advances: common questions

In shortThe questions lenders and borrowers search for most, each answered on its own.