For Australian businesses eyeing new growth opportunities in 2025, access to flexible finance is more crucial than ever. As banks tighten risk controls and alternative lenders gain ground, the concept of the borrowing base is moving centre stage. Whether you’re running a manufacturing firm, a wholesale distributor, or a fast-growing tech startup with significant receivables, understanding the borrowing base could be the difference between stalling and scaling.
What is a Borrowing Base and Why Does It Matter?
The borrowing base is the calculated value of your business assets that lenders are willing to use as collateral for a line of credit or loan. It’s most common in asset-based lending (ABL) arrangements, where your access to funds rises and falls with the value of your eligible assets—typically inventory and accounts receivable.
In 2025, with interest rates still elevated and banks under ongoing APRA scrutiny to ensure prudent lending, borrowing base facilities are helping Australian SMEs unlock working capital without overextending their risk profile. Instead of a static credit limit, your business can draw funds as needed, secured by real, verifiable assets. This dynamic approach is especially valuable in volatile economic environments, when cash flow can fluctuate unpredictably.
- Accounts receivable (unpaid customer invoices) are usually the largest component, with advance rates often between 70-85%.
- Inventory (finished goods, raw materials) may be included at lower advance rates, usually 40-60% due to valuation risks.
- Other assets (e.g. plant and equipment) are sometimes considered, but less commonly for short-term working capital lines.
The borrowing base is recalculated regularly—often monthly, or even weekly for larger facilities—to reflect changes in your asset position. Lenders typically require detailed reporting and may audit your asset values to ensure accuracy.
Borrowing Base in Practice: A 2025 Case Study
Consider an Australian wholesaler supplying hardware to the construction sector. In early 2025, the business faces a surge in demand following the federal government’s expanded infrastructure stimulus. To fund larger inventory purchases and longer customer payment terms, the company negotiates a borrowing base facility with a major non-bank lender.
Here’s how it works:
- The lender reviews the business’s accounts receivable ledger and inventory records.
- Eligible receivables (those less than 90 days past due and from creditworthy customers) total $2 million. Inventory eligible for advance totals $1 million.
- The facility applies a 75% advance rate on receivables and 50% on inventory, resulting in a borrowing base of $1.5 million + $500,000 = $2 million.
- As invoices are paid or new stock is purchased, the borrowing base is updated, and the company can draw or repay funds accordingly.
This approach provides the flexibility to scale up working capital as the business grows, without renegotiating the entire facility or pledging fixed assets like real estate.
2025 Policy Trends: What’s Changing for Borrowing Base Lending?
Several regulatory and market shifts are influencing borrowing base facilities in 2025:
- APRA’s Enhanced Prudential Standards: In response to global market volatility and recent high-profile collapses, APRA is mandating more frequent collateral verification and stricter loan-to-value ratios for banks offering ABL facilities.
- Rise of Alternative Lenders: Fintechs and non-bank lenders are aggressively expanding borrowing base products, using real-time data integrations with accounting software (like Xero and MYOB) to automate eligibility calculations and asset audits.
- Green Asset Incentives: The federal government’s 2025 Clean Finance Initiative provides incentives for facilities secured by inventory or receivables linked to sustainable or low-carbon goods, offering lower interest margins for qualifying borrowers.
For many SMEs, these trends mean greater access to tailored financing, but also an increased need for robust internal controls and regular asset reporting. Businesses with up-to-date digital records and transparent reporting processes are best positioned to maximise their borrowing base and negotiate favourable terms.
Pros and Cons: Is a Borrowing Base Facility Right for Your Business?
Before pursuing a borrowing base facility, it’s worth weighing the benefits and trade-offs:
- Pros:
- Flexible access to capital that grows with your business
- Typically lower interest rates than unsecured options
- Doesn’t require pledging personal property or real estate
- Encourages strong working capital management
- Cons:
- Ongoing reporting and asset audits can be time-consuming
- Asset quality issues (e.g. slow-paying customers) can reduce available funding
- Facility costs (legal, audit, admin fees) may be higher than standard loans
- Not suitable for businesses with minimal inventory or receivables
Borrowing base facilities are particularly well-suited for growing, asset-rich businesses with reliable accounting systems. For early-stage startups, or companies with few physical assets, alternative finance options may be more appropriate.
