From recorded equipment value to an eligible borrowing base

Fictional Acquisition Companion example

This hypothetical uses invented facts and numbers. A fictional manufacturer records £520,000 of equipment on its books. A current appraisal for the lender’s stated valuation basis is £355,000. Of that appraised amount, £55,000 is already pledged or otherwise ineligible under the assumed facility rules.

Calculate the illustrative base

1. Appraised equipment value: £355,000.
2. Less ineligible or previously pledged assets: £355,000 − £55,000 = £300,000 eligible collateral.
3. At an assumed 62% advance rate: £300,000 × 62% = £186,000 gross borrowing base.
4. Compared with book value: £186,000 ÷ £520,000 = 35.8% (rounded).

The assumed advance rate and eligibility decisions are fictional inputs, not typical lender terms. The gross base may also differ from cash available after reserves, fees, prior claims or other facility conditions.

Verify the collateral definition

Accounting value, appraised value, eligible collateral and funds available to close are different quantities. A buyer should confirm who owns each asset, which liens attach to it, how the appraisal handles sale conditions and what deductions the lender applies. A borrowing-base estimate is only as reliable as those underlying definitions. Continue with collateral and asset-based lending.