Borrowing Base Financial Covenants Clause Samples

The Borrowing Base Financial Covenants clause sets specific financial requirements that a borrower must maintain, based on the value of certain assets, to determine the maximum amount they are allowed to borrow under a credit agreement. Typically, this involves calculating a borrowing base by applying predetermined advance rates to eligible assets such as accounts receivable or inventory, and the borrower must regularly report these values to the lender. This clause ensures that the lender's risk is limited by tying the loan amount to the value of liquid collateral, thereby protecting the lender from overexposure if the borrower's asset values decline.