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Key takeaways
- Accepted collateral and the agreement determine the base.
- The commitment can limit borrowing even when collateral supports more.
- Subtract existing draws before planning another use of funds.
Why does the term matter in a care-business sale?
A working-capital line can fund the gap between providing services and getting paid. Its stated limit does not show what the buyer can draw today. OCC describes a borrowing base as an agreed formula that limits loans against pledged assets. The credit commitment sets a separate ceiling. (Source: OCC ABL handbook, printed pages 15 and 71)
That distinction matters when planning payroll or the first weeks of a purchase. Amounts on an aging schedule may fail the lender's rules for accepted accounts. Do not count gross receivables, the borrowing base and unused credit as three separate sources of money.
A fictional example where the commitment limits borrowing
Assume a lender accepts $200,000 of collateral in a fictional receivable facility. An assumed 75% advance rate produces $150,000. A separate $10,000 reserve reduces the borrowing base to $140,000. These are invented terms, not an offer or a standard for healthcare accounts.
The facility commitment is only $120,000. With $90,000 already drawn, the remaining amount is $30,000: the lower of $140,000 and $120,000, less $90,000. Using the borrowing base alone would incorrectly suggest another $50,000 is available. No other restriction is assumed in this example.
Even the correct $30,000 is a proposed loan, not cash already held or extra buyer equity. Other loan conditions must be met before a draw. The lender underwriting guide shows a case where the pledged assets set the lower limit.
What should the buyer and lender confirm?
List the accepted assets, excluded items, advance rates, reserves, existing draws and credit limit. Use one dated schedule and do not deduct the same item twice. Check when the figures must be refreshed and who signs the report. The loan covenant definition explains why reports and agreed triggers still matter after closing.
FDIC's receivable-financing discussion addresses accepted accounts, aging and concentration in the lending policy. It does not establish eligibility for every healthcare payment stream. (Source: FDIC Loans, March 2026, page 3.2-11) Have the lender and healthcare counsel review actual payment rights and account arrangements where necessary.
For a qualifying residential-care project, the HUD buyer guide adds the separate AR approval and account-control review. Its cash example does not spend an unapproved advance. Borrowing arithmetic and permission to use funds remain distinct.
Use the working-capital guide to connect availability with the timing of operating bills. The financing overview and method comparison address the wider acquisition funding plan. This term describes one constraint within that plan, not approval of the purchase.
Frequently asked questions
Is the borrowing base the same as the credit-line limit?
No. The commitment sets one ceiling; eligible collateral can create another. The lower applicable limit, existing draws and other agreement conditions determine what remains available. Neither limit alone is cash in the bank.
Can every receivable be included in a borrowing base?
No. The agreement defines eligibility. Aging, disputes, concentration, payment rights and other conditions can affect inclusion. Government-payer accounts need their own legal and lender review; ledger recognition does not automatically establish collateral eligibility.
Does an unused credit line count as buyer equity?
Do not count it as equity merely because it is available to borrow. A draw creates debt and remains subject to the facility's terms. The acquisition lender must assess the actual funding sources and required contribution.
What happens if the borrowing base falls below existing draws?
That can create an overadvance. There is no additional availability under that calculation. The loan agreement determines the required response and timing; contact the lender and advisers rather than assuming continued borrowing or an automatic extension.
Sources
Sources are dated to distinguish current guidance from earlier publications. They support the identified facts; the transaction questions and examples are educational analysis.
- OCC Asset-Based Lending: borrowing base and covenant review (2017). Retrieved September 7, 2026.
- FDIC Loans: reviewed commercial and receivable lending sections (2026). Retrieved September 7, 2026.