Commercial Credit, Working Capital & Asset-Based Lending
ABL Borrowing Base, Dilution Reserve & Availability Formula
Calculate Asset-Based Lending (ABL) Effective AR Advance Rate 0.85 - MAX(0, 2*(Dilution - 0.05)), Capped Borrowing Base MIN(Commitment, AR_Adv + 0.85*Inventory_NOLV), Excess Availability, and Springing Cash-Dominion Covenant Gate.
Model the 2x field-exam AR Dilution Reserve and 10% springing Cash Dominion trigger!
Corporate treasurers preparing weekly Asset-Based Lending (ABL) Borrowing Base Certificates (BBCs) often assume Eligible Accounts Receivable always advance at a flat 85%! In standard commercial bank credit agreements, the 85% advance rate assumes <= 5.0% non-cash AR Dilution (returns, promotional allowances, defective-goods chargebacks, and billing disputes); every 1.0% of historical dilution above 5.0% triggers a 2x Dilution Reserve MAX(0, 2 * (Dilution - 0.05)), cutting Effective AR Advance Rate = MAX(0, 0.85 - MAX(0, 2 * (Dilution - 0.05)))! Combined with Eligible Inventory advanced at 85% of Net Orderly Liquidation Value (0.85 * Inv_NOLV) and capped at the Revolver Commitment Ceiling, Excess Availability = Borrowing_Base - Drawn_Loan_Balance governs whether the 10% "Springing Cash Dominion & Fixed-Charge Coverage Ratio (FCCR)" lockbox sweep activates!
Verify on a Distributor’s Weekly BBC—Eligible_AR = $10,000,000 (B2), Trailing_AR_Dilution = 0.08 (8.0% -> 2 * 3.0% = 6.0% reserve, B3), Eligible_Inventory_NOLV = $5,000,000 (B4), Drawn_Revolver_Balance = $9,000,000 (B5), and Facility_Commitment_Cap = $15,000,000 (B6): Effective AR Advance Rate drops from 85.0% to 0.7900 (79.00% in E2); Total Capped Borrowing Base is MIN($15.0M, $7.90M + $4.25M) = $12,150,000 (E3); Excess Availability is $12,150,000 - $9,000,000 = $3,150,000 (E4); and since $3.15M >= 10% of Borrowing Base ($1.215M), E5 confirms "Covenant Clear: Normal Availability"!
| ABL Borrowing Base Metric ($10M AR @ 8% Dil, $5M Inv NOLV, $9M Drawn, $15M Cap) | Formula | Verified Output |
|---|---|---|
| Effective AR Advance Rate | MAX(0, 0.85 - MAX(0, 2*(Dil - 0.05))) | 0.7900 (0.8500 @ 4% Dilution) |
| Total Capped Borrowing Base ($) | MIN(Cap, AR * Adv_Rate + 0.85 * NOLV) | $12,150,000 ($12,750,000 @ 4% Dil) |
| Excess Revolver Availability ($) | Borrowing_Base - Drawn_Balance | $3,150,000 ($650,000 @ $11.5M Draw) |
| 10% Springing Dominion Gate | Avail < 0 Default | < 10% BB Dominion | Covenant Clear: Normal Availability |
ABL Borrowing Base & Springing Cash-Dominion Formula
Validate non-negative collateral and loan balances, 0 <= Dilution <= 1, and strictly positive Commitment_Cap > 0!
=LET(ar_e, B2, dl_r, B3, in_v, B4, dr_w, B5, cp_m, B6, IF(OR(ar_e < 0, dl_r < 0, dl_r > 1, in_v < 0, dr_w < 0, cp_m <= 0), "Invalid Borrowing Base Input", LET(ad_r, MAX(0, 0.85 - MAX(0, 2 * (dl_r - 0.05))), bb_t, MIN(cp_m, ar_e * ad_r + 0.85 * in_v), ROUND(bb_t, 2))))Clean 4% Dilution Recovery & $11.5M Draw Cash-Dominion Trigger Checks
Tighten credit memos so Dilution B3 drops to 0.04 (<= 5%): AR Advance Rate E2 restores to 85% and Borrowing Base E3 rises to $12,750,000! Or keep B3 = 0.08 and draw B5 = $11,500,000: Excess Availability drops to $650,000 (< 10% of $12.15M), triggering "Cash Dominion & FCCR Triggered"!
=IF(ISTEXT(E3), E3, IF(E4 < 0, "Overadvance Default: Mandatory Paydown", IF(E4 < 0.1 * E3, "Cash Dominion & FCCR Triggered", "Covenant Clear: Normal Availability")))Try the example
Use the original values or change them to test your understanding.