Notes from the desk.

An asset-based revolver doesn't lend against a number on last year's statements — it lends against a formula that recalculates as the business moves. That formula is the borrowing base: eligible collateral, multiplied by an advance rate, summed across asset classes. Availability on any given day is whatever the formula says, less what's already drawn.

"Eligible" is where the underwriting lives. Receivables past an aging cutoff, concentrated in a single customer beyond a set limit, owed by affiliates, or subject to offset typically fall out of the base. Inventory is usually valued at the lower of cost or a net orderly liquidation view, with slow-moving or obsolete stock excluded. Each asset class then carries its own advance rate — receivables typically advance higher than inventory because they convert to cash more predictably.

The mechanism cuts both ways, and that's the point. In a growth quarter or a seasonal build, the base expands and availability rises without renegotiating the facility. In a slow stretch, it contracts — which is precisely why lenders can extend more capacity through this structure than a fixed line would allow. The borrowing base certificate, submitted on a set cadence, is what keeps the formula honest.

For a company whose balance sheet outruns its trailing earnings, that self-adjusting quality is the whole appeal: capacity tied to what the business actually holds, not to what it looked like at the last annual review.

A sale-leaseback is a simple trade: a finance company purchases equipment the business already owns, and the business leases it back and keeps operating it. Nothing on the shop floor changes. What changes is the balance sheet — equity trapped in owned machinery converts to working capital at close.

Against a conventional term loan, the differences are practical. Proceeds are keyed to the appraised value of the assets rather than to leverage multiples on trailing earnings, which matters for companies whose equipment is worth more than their last twelve months suggest. Timing is independent of a bank's renewal calendar. And the obligation takes the form of lease payments rather than loan covenants — though that deserves a clear eye: lease documents carry their own terms and defaults, and they should be read as carefully as any credit agreement.

Where a leaseback is the wrong tool: assets that obsolesce quickly can leave the business paying on equipment it no longer wants; total cost over the lease term can exceed a loan when rates are favorable elsewhere; and the tax and accounting treatment differs enough from debt that the company's advisors should be in the conversation before the term sheet, not after.

Used on the right assets — long-lived machinery, fleet, production equipment — it's one of the cleanest ways to fund growth out of capital the business already created.

Between term sheet and funding, most asset-based facilities include a field exam — a scoped review of the collateral and the books that support it. It isn't an audit, and it isn't adversarial. Its job is to confirm that the borrowing base the facility will rest on reflects reality.

Examiners concentrate on a predictable set of items. On receivables: the aging, a sample of invoices traced to shipping documents and cash receipts, credit memo activity, and customer concentrations. On inventory: how the perpetual records tie to counts, how cost is built, and what should be classed as slow-moving. Around both: lien searches, cash management, and how the month-end close actually happens.

Preparation is mostly housekeeping done early. A reconciled aging that ties to the general ledger. Inventory records that match what a walk-through would find. Known ineligibles — the affiliate account, the disputed balance — disclosed up front rather than discovered. Companies that arrive with that groundwork done routinely move through diligence in a fraction of the time, because every open question an examiner has to chase is a day added between approval and funding.

The quiet benefit: the discipline a field exam rewards is the same discipline that makes the borrowing base generous. Clean records don't just close faster — they borrow better.