ABL Borrowing Base Ineligibles: Accounts Receivable (AR) and Inventory
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In Asset-Based Lending (ABL), borrowing base ineligibles refer to specific portions of Accounts Receivable (AR) and/or Inventory that do not
qualify as collateral to advance funds against. They are typically excluded from the borrowing base because they are deemed to carry higher
risk, be uncollectible, or lack sufficient liquidation value.
Impact on Borrowing Base:
Lenders determine a borrowing base by applying advance rates to the eligible portions of AR and Inventory.
The removal of ineligibles reduces the borrowing capacity, which can impact liquidity and available working capital.
A high percentage of ineligibles may indicate financial stress, inventory inefficiencies, or collection challenges,
potentially leading to covenant breaches or reduced financing availability.
Effective management of AR and Inventory ineligibles is critical to maximizing borrowing base availability and ensuring compliance with
lender requirements.
Accounts Receivable (AR) Ineligibles:
AR ineligibles reduce the total eligible accounts receivable balance by removing invoices that present collection risk or do not meet the lender’s criteria.
Click here to view the most common AR ineligible categories.
Inventory Ineligibles:
Inventory ineligibles account for stock that lacks marketability, liquidity, differs in value as compared to other aspects of the books or does not meet lending standards.
Click hereM to view the most common Inventory Ineligibles.