An advance rate is the percentage of an asset's value a lender will actually lend against. A lender might advance 80% against eligible receivables or 60% against inventory — meaning the borrower can borrow up to that percentage of the collateral's value. Advance rates reflect the lender's assessment of how quickly and reliably the asset can be converted to cash.
Advance rates are core to asset-based lending (ABL), invoice factoring, and revolving lines of credit secured by receivables or inventory. They reflect the lender's haircut for the risk that collateral will be worth less than expected at the time of liquidation — due to depreciation, concentration, obsolescence, or collection difficulty. Typical advance rates: eligible receivables under 90 days past due: 70–85%. Finished goods inventory: 40–60%. Raw materials: 25–50%. Real estate: 65–80% of appraised value (LTV). These ranges vary by lender, industry, and asset quality. The borrowing base — the maximum available on a revolving credit facility — is computed by multiplying each asset type by its advance rate. The SBA's asset-based lending framework (https://www.sba.gov/document/support-sba-standard-operating-procedures) and standard ABL practice reference advance rates extensively. Lenders perform periodic field examinations to verify the collateral pool and adjust the advance rates accordingly. A high-quality [[accounts-receivable-aging]] profile (mostly current invoices, low concentration) commands the highest advance rates.
Each asset type has a different liquidation profile. Receivables from creditworthy customers convert to cash reliably; inventory varies by obsolescence risk, storage costs, and buyer demand. Real estate takes longer to sell and its value is appraiser-dependent. Lenders set advance rates to ensure the loan stays fully covered even under stressed liquidation assumptions.
Yes, particularly if your receivables are high quality (well-known customers, short days-outstanding, low concentration). A strong audit and clean aging report are the best levers for negotiating higher advance rates. Lenders may also raise rates for long-term relationships with clean track records.