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Advance rate
Also called advance percentage, initial advance.
The share of an asset's eligible value a funder will put up front, used in factoring, asset-based lending and equipment finance.
Drafted with AI assistance and checked by a person. Its factual claims were verified against the sources listed at the end, by Find Me Funders research desk.
What it means
In factoring, the advance rate is the percentage of the invoice face value paid on purchase, with the remainder held as a reserve and released, less fees, once the customer pays. In an asset-based line it is applied by asset class within a borrowing base: one rate against eligible receivables, a lower one against inventory, another against equipment or real estate. In equipment finance the equivalent idea is the percentage of the equipment cost financed, with the balance covered by a down payment.
The rate is set by how confidently the funder can turn the asset into cash. Receivables from creditworthy commercial debtors on short terms support a high rate. Inventory supports much less, because liquidation value is a fraction of book value. Slow-paying industries, heavy dilution, weak debtor credit and customer concentration all pull the rate down.
Advance rates are quoted against eligible value, not gross value. The eligibility rules come first, the advance rate second. This is the part borrowers routinely miss when estimating availability.
The reserve is not a fee. In factoring it is your money, held until the invoice settles, and returned net of the factoring fee and any chargebacks. Whether it is released per invoice, per batch or on a delayed schedule is a term worth reading.
Where this one catches people
Advance rate is a measure of how much, not how much it costs. A higher advance rate with a higher discount fee, longer reserve hold, or aggressive ineligibility rules can deliver less usable cash than a lower advance rate on clean terms. Brokers compete on this number because it is the easiest one to make look good.
Worked through
A 100,000 invoice at an 85 percent advance rate pays 85,000 on purchase. The customer pays in 45 days. If the fee earned by then is 2,700, the reserve release is 100,000 - 85,000 - 2,700 = 12,300, and total cash received is 97,300.
Figures in the example are illustrative. They show the arithmetic, not a quote — what any one lender would charge is on that lender's page, where it is published at all.
Where you will meet this term
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Sources and checks
Every figure on this page traces to a document someone read, on a date. Where a check is past its review date it says so rather than passing as current.
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an 85% advance on a 100,000 invoice pays 85,000, and a 2,700 fee leaves a 12,300 reserve release and 97,300 of total cash
example100,000 x 0.85 = 85,000 advanced. Reserve release = 100,000 - 85,000 - 2,700 = 12,300. Total cash = 85,000 + 12,300 = 97,300, which reconciles to 100,000 - 2,700 = 97,300. The 2,700 fee is presented conditionally ('if the fee earned by then is 2,700'), not as a market norm.
Advance rate — common questions
What does advance rate mean?
The share of an asset's eligible value a funder will put up front, used in factoring, asset-based lending and equipment finance.
Where does advance rate catch people out?
Advance rate is a measure of how much, not how much it costs. A higher advance rate with a higher discount fee, longer reserve hold, or aggressive ineligibility rules can deliver less usable cash than a lower advance rate on clean terms. Brokers compete on this number because it is the easiest one to make look good.
Is advance rate the same as an interest rate?
Advance rate is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does advance rate apply to?
Working Capital, Equipment Financing, Invoice Financing, Asset-Based Lending.
Is there a worked example of advance rate?
Yes, on this page, and it is labelled illustrative. It shows the arithmetic, not a quote from any lender.
What else should I read alongside advance rate?
Accounts receivable, Borrowing base, Concentration, Dilution, Discount rate.
Has this definition been checked?
Yes. Its claims were verified against the sources listed at the end of this page, and the reviewer is named.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.