BREAKING DOWN 'Borrowing Base'There are various assets that can be used as collateral, including accounts receivable, inventory and equipment. For example, if a company goes to a lender to borrow money, the lender will assess the company's strengths and weaknesses, and evaluate the borrower's risk. Based on the risk that the lending company feels is associated with the loan to the company, a discount factor of 85% may be determined. If the borrower is offering collateral that is worth $100,000, the maximum amount the lending company will give the company is equal to 85% of $100,000, or $85,000.
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