May 1, 2026
What is a borrowing base for a restoration company? A borrowing base is a formula used by lenders to calculate the maximum amount a restoration company can draw on a revolving credit facility, typically based on a percentage of eligible accounts receivable (often 70–85% of AR under 90 days). Understanding your borrowing base determines how much working capital is actually available — and how insurance AR aging directly affects your credit access.
Most restoration owners don’t understand their own credit facility until they’re in breach of a covenant. By then, the bank is calling them — not to help, but to demand a cure. Understanding how your borrowing base works and what covenants your lender has imposed is financial literacy that pays for itself every quarter. Here’s what banks actually look at.
A revolving credit facility (line of credit) for a restoration company is typically structured as an asset-based loan where the available balance is tied to a borrowing base — a formula that converts your eligible assets into a credit limit. For most restoration companies, the primary asset in the formula is accounts receivable.
The typical formula: Eligible AR (AR under 90 days, excluding disputed or ineligible invoices) × advance rate (typically 70–85%) = borrowing base = maximum credit line availability. Here’s the critical implication: if your AR ages, your borrowing base shrinks. A restoration company with $400,000 in AR at a 75% advance rate has a borrowing base of $300,000. If AR aging deteriorates and $100,000 of that AR crosses 90 days and becomes ineligible, the borrowing base drops to $225,000 — even if the credit line is $350,000. The line is there; the borrowing base isn’t.
Insurance AR creates a specific complication that most lenders don’t fully appreciate but good lenders do: insurance AR under 90 days isn’t always a collection risk — it’s often in normal TPA processing. Lenders who understand the restoration industry will count insurance AR to 120 days as eligible. Lenders who don’t will age you out of your credit access on perfectly collectible invoices. Know which kind of lender you have.
Debt Service Coverage Ratio (DSCR). The most common covenant for restoration company credit facilities. DSCR = annual net operating income ÷ annual debt service (principal + interest). Most lenders require a minimum DSCR of 1.20–1.25x, meaning your operating income must cover your debt payments with 20–25% cushion. A company generating $200,000 in annual net operating income with $150,000 in annual debt service has a DSCR of 1.33x — inside the covenant. If operating income drops to $160,000, the DSCR falls to 1.07x — potentially in breach.
Leverage ratio. Total debt ÷ EBITDA. Most lenders cap this at 3.0–4.0x for restoration companies. If your EBITDA is $300,000 and your total debt is $900,000, your leverage ratio is 3.0x — at the boundary. A bad quarter that drops EBITDA to $250,000 moves you to 3.6x, which may trigger a covenant conversation.
Current ratio. Current assets ÷ current liabilities. Lenders typically require a minimum of 1.10–1.25x, meaning current assets must exceed current liabilities by at least 10–25%. For restoration companies, this ratio can move quickly when AR aging deteriorates or payables compress — especially coming out of a storm season with heavy equipment purchases.
AR aging is increasing month over month. Gross margin is declining. Revenue is flat or down while overhead is growing. You’re regularly drawing near your credit line maximum. Any of these individually is a yellow flag. Two or more together warrants a conversation with your lender before they call you — proactive disclosure of a covenant risk almost always goes better than a lender discovering it in your quarterly financials.
Directly. As insurance AR ages past the eligible threshold in your borrowing base formula (typically 90 days), those invoices are excluded from the borrowing base calculation. Your available credit shrinks even if the invoices are legitimately collectible. This is why AR management is both a cash flow issue and a credit access issue in restoration.
A covenant breach typically triggers a default notice, which gives the borrower a cure period (usually 30–60 days) to remedy the breach. During this period the lender may freeze new draws on the credit line. If the breach isn’t cured, the lender can accelerate the debt — demand immediate repayment of the outstanding balance. This is why understanding your covenants before you’re in breach is essential. A breach you know about in advance can almost always be managed; one that surprises your lender cannot.
Come to renewal with data: two or three years of clean financial history, a demonstrated understanding of your own ratios, and a clear explanation of why the insurance AR aging in your business looks different from a standard service company. Lenders who understand restoration will be more flexible. Bring a banker who has done restoration company loans before if possible — industry familiarity in the lending relationship matters.
Mike McCabe is The Profit Detective — a 36-year restoration industry veteran and Fractional Operations Manager at Floodlight Consulting Group.
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