Borrowing base facilities—structure, key terms and risks
Produced in partnership with Dentons UK and Middle East LLP
Borrowing base facilities—structure, key terms and risks

The following Banking & Finance guidance note Produced in partnership with Dentons UK and Middle East LLP provides comprehensive and up to date legal information covering:

  • Borrowing base facilities—structure, key terms and risks
  • What is a borrowing base facility?
  • Typical borrowing base structure
  • Key risks for the lender

What is a borrowing base facility?

Borrowing base facilities ('BB Facilities') are a type of trade finance. They are working capital credit facilities which are secured in full by current assets (usually trading receivables, inventory (ie goods in storage or in transit), cash and contractual rights) of the borrower and/or other security providers. To that end, the amount of capital available to the borrower at any moment is directly linked to the value of the assets providing security to the lender(s).

BB Facilities are generally provided to trading companies on a revolving basis for the purposes of purchasing, storing, transporting and selling prescribed commodities.

A typical BB Facility will have a tenor of 1–2 years, although it is also common for BB Facilities to be extended.

BB Facilities are usually secured by:

  1. security over trading receivables and other rights of the borrower under its contracts for the sale and purchase of inventory included or to be included in the borrowing base

  2. security over the inventory itself, and

  3. security over a collection account (ie over a bank account into which proceeds of receivables are paid)

For more information, see Practice Notes:

  1. Borrowing base facilities—key terms in the facility agreement, and

  2. Borrowing base facilities—taking security

Typical borrowing base structure

The facilities

The facilities generally made available under a borrowing base facility agreement are: