Borrowing base
A borrowing base is the pool of eligible collateral, valued at agreed advance rates, that caps how much a borrower can draw on a credit facility at any moment. It moves as collateral is added, ages or pays off.
How a borrowing base works
A credit facility has a headline size (the commitment), but what you can actually draw is limited by the borrowing base. The Office of the Comptroller of the Currency describes it as the collateral base agreed by the borrower and lender that limits the funds the lender will advance, specified “in terms of collateral type, eligibility, and advance rates.” Loans that fail the eligibility criteria stay pledged but count for nothing.
On a warehouse line or loan-backed facility, each eligible loan contributes its balance (or value) times the advance rate. The lender reports the base on a borrowing base certificate, often monthly or with every draw, and the provider can reduce it for aged loans, loans over a concentration limit or loans that have gone delinquent.
Why it matters to a private lender
Your usable capacity is the borrowing base, not the commitment. A $10,000,000 line means little if your bridge loans only qualify at a low advance rate, or if half your pipeline is in a loan type the line excludes. When the base shrinks below what is drawn, you have to pay the difference down.
Example
Hypothetical. A lender pledges $8,000,000 of loans. $1,000,000 is past the dwell limit and $500,000 is over a single-borrower limit, leaving $6,500,000 eligible. At a 75% advance rate the borrowing base is $4,875,000, well under the $10,000,000 commitment.
See how this compares with whole-loan funding on the warehouse line alternative page.
Sources
- Office of the Comptroller of the Currency, Comptroller’s Handbook: Asset-Based Lending (borrowing base, eligibility, concentration limits, availability sub-limits)
- Kim, Laufer, Pence, Stanton and Wallace, “Liquidity Crises in the Mortgage Market,” Federal Reserve Board FEDS 2018-016 (warehouse lines as repurchase agreements, mark-to-market margin calls, covenants, guarantees, 364-day terms)
Where Lender Capital fits
Lender Capital places first-lien, business-purpose real estate loans with capital partners. You apply once, then submit each loan with the full file. We send it only to capital partners whose criteria it fits, one partner funds the whole loan at closing and it is assigned to them. You keep your points (less the placement fee), earn the spread above the partner’s rate and service the loan. You pay a placement fee only when a loan funds.
Lender Capital is a business-to-business platform. This page is general information, not legal, tax or securities advice. Terms of warehouse lines and other funding sources vary by provider; confirm them with each provider and your counsel.