Warehouse facility size is set by the borrowing base, not by the borrower's ask. Lenders apply eligibility criteria to the loan tape, strip out ineligible receivables, apply an advance rate to what remains, and layer concentration limits on top. The result is usually smaller than the originator expects.
The borrowing base as the actual sizing mechanism
The number an originator puts forward as the facility they need is rarely the number a lender arrives at, because lenders size warehouse facilities off the borrowing base rather than off the borrower's stated requirement. The borrowing base is a formula applied to the loan tape, and it produces its own answer regardless of what the originator was hoping for.
The mechanism is sequential. Eligibility criteria are applied first to strip out receivables that cannot count towards the base at all. An advance rate is then applied to what remains. Concentration limits are layered on top, capping how much of the eligible pool can come from any single obligor, geography or vintage. Each step reduces the number further.
Understanding this sequence before a facility is proposed changes how an originator prepares its tape, because the improvements that move the borrowing base — cleaner eligibility, diversified concentration — are visible and correctable well before a term sheet is drafted.
Eligibility criteria: what gets excluded and why
Eligibility criteria define which receivables in the loan tape are allowed to count towards the borrowing base at all. Common exclusions include loans past a defined delinquency threshold, loans to obligors already in default on other facilities, loans with a remaining tenor shorter than a stated minimum, and loans originated outside the agreed underwriting box.
These criteria are negotiated, but they are not arbitrary. A lender sets them to exclude exactly the receivables most likely to underperform, based on its own experience with comparable portfolios, and an originator that pushes back on a specific criterion should expect to be asked for the data that justifies the exception.
The practical effect is that a loan tape with a face value of 100 can easily see 10 to 20% excluded before any advance rate is even applied, simply on eligibility grounds, which is the first and largest gap most originators underestimate.
Advance rates by asset quality and what moves them
The advance rate is the percentage of the eligible pool a lender will actually fund against, and it moves with asset quality. Senior secured consumer loans with strong historical loss performance might see an advance rate in the region of 85%, while unsecured or higher-risk consumer paper might see 60% or lower, purely as an illustrative range.
Advance rates are not static once set. They are typically tested and can step down if the loan tape's performance deteriorates against agreed triggers — rising delinquency, a shift in vintage performance, or a change in the obligor mix — which means the facility can shrink even if the originator's book keeps growing.
Originators who track their own eligible pool and advance rate exposure monthly, rather than waiting for the lender's own calculation, are better positioned to anticipate a step-down before it happens rather than discover it in a borrowing base certificate.
Concentration limits — obligor, geography, product, vintage
Concentration limits cap how much of the eligible, advance-rate-adjusted pool can be attributed to any single dimension of risk. A limit might restrict any single obligor to 1% of the base, any single geography to 25%, or any single vintage to 30%, again as illustrative figures rather than a universal standard.
These limits exist because a diversified pool behaves more predictably than a concentrated one, and a lender pricing a warehouse facility is pricing the pool's aggregate behaviour, not any individual loan within it. A portfolio that looks eligible and well-advanced on paper can still be excluded in large part if it is concentrated in a single product or region.
For an originator, the practical implication is that growth strategy and facility size are linked. A deliberate push into a single high-performing product line can, past a certain point, start reducing the effective facility size rather than increasing it, once concentration limits bind.
A worked example: USD 100m book to an effective facility size
As an illustrative example, consider an originator with a USD 100m loan tape. Eligibility criteria exclude 15% of the pool on delinquency and underwriting-box grounds, leaving USD 85m eligible. An advance rate of 75%, reflecting a moderate-risk asset class, is then applied, producing USD 63.75m of nominal facility capacity.
Concentration limits are then tested against the eligible pool. If a single geography represents 35% of the book against a 25% limit, the excess above that limit is stripped out before the advance rate calculation in practice, or capped in the ongoing borrowing base test, further reducing usable capacity in subsequent periods as the book grows unevenly.
The gap between the USD 100m headline book and an effective facility size closer to USD 55m to 60m once all three mechanisms are applied is not unusual, and it is the reason originators are consistently surprised by term sheets that appear to undersize their request.
Why the gap between book size and facility size is the diligence conversation
The distance between the originator's headline book and the lender's calculated facility size is not a negotiating gambit on either side — it is the substance of the diligence process itself, and treating it as such changes how productively the conversation goes.
Originators who arrive with their own borrowing base calculation, run on the lender's expected eligibility criteria, advance rate assumptions and concentration limits, remove most of the surprise from the process and can direct the conversation towards the specific line items where they believe the lender's assumptions are too conservative.
Originators who arrive only with the headline book size and a funding target spend the early stage of the process reconciling expectations rather than negotiating terms, which is time better spent elsewhere.
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Last reviewed August 2026
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