A borrowing base certificate is one page. The borrower fills it in, an officer signs it, and the lender advances money against the number at the bottom. Most lenders get one a month; some weekly. Here is one, with the numbers made up. Copy it if you need a template — it foots.
| Gross accounts receivable | $12,400,000 |
| Less ineligibles | (1,850,000) |
| Eligible receivables | 10,550,000 |
| × advance rate 85% | 8,967,500 |
| Eligible inventory | 6,000,000 |
| × advance rate 50% | 3,000,000 |
| Less reserves | (250,000) |
| Borrowing base | 11,717,500 |
| Less loans outstanding | (9,200,000) |
| Availability | 2,517,500 |
| Certified true, complete and correct — chief financial officer, date. | |
What each line is
- Gross receivables
- The aging total, as of the date on the certificate.
- Ineligibles
- Invoices over ninety days; customers with more than half their balance over ninety; anything over the concentration limit; affiliates, foreign, government, contra, disputed. The loan agreement sets the list.
- Advance rate
- Usually eighty to eighty-five percent on receivables; on inventory, half of cost or eighty-five percent of the appraiser’s liquidation value, whichever is less.
- Reserves
- Rent, dilution, whatever else the agreement names.
- Availability
- The borrowing base less what’s already drawn. The line everyone reads.
- The signature
- An officer certifies the page is true.
Where the numbers come from
Every line above the signature comes from the borrower’s own system — the aging, the perpetual, the ledger. On the lender’s side a spreadsheet or a monitoring system takes the certificate and calculates availability. It checks that the arithmetic follows the agreement. It doesn’t check whether the aging is true. That happens at the field exam: a sample, once or twice a year.
This spring SFNet’s fraud task force studied twenty-six real cases and told lenders to cross-check borrowing-base reports against actual cash receipts. In fifty-eight percent, the invoices were fabricated or inflated. First Brands’ certificates footed perfectly, right up to the end.
What to check it against
Cash. A real invoice gets paid, into an account you hold the statement for. So:
- Does the aging tie to the ledger, and the ledger to the bank statement?
- Do last month’s 61–90s show up in this month’s over-90s, or disappear?
- The same invoice counted twice — same customer, same cents, two invoice numbers?
- Are “Acme Corp,” “ACME” and “Acme Inc.” one customer? The concentration limit turns on it.
One certificate, by hand, with the statements in front of you: doable. Every borrower, every cycle: it doesn’t get done, and three lenders in four told the task force that monitoring is the weak spot. Burry does it on every row, every cycle. How, in thirteen points.
If you’d like a certificate from your portfolio read this way, book fifteen minutes.
Or just write. eyoel [at] getburry.com