What Is Advance Rate? | Business Lending Glossary

Definition

The percentage of an invoice or asset value a lender will fund upfront.

Explanation

Advance rates vary by asset quality and lender risk tolerance, commonly ranging from 70% to 90% on invoices and 50% to 80% on equipment or inventory. The remaining percentage is held as a reserve and released (minus fees) once the underlying asset is collected or liquidated.

Example

A staffing agency factors $100,000 in invoices at an 85% advance rate, receiving $85,000 immediately while $15,000 is held in reserve until clients pay.

Why It Matters

A higher advance rate means more immediate cash in hand, which directly impacts how effectively a business can bridge gaps between delivering work and collecting payment.

Frequently asked questions

What determines my advance rate?

Lenders set advance rates based on the creditworthiness of your customers, invoice aging, industry default rates, and the concentration of any single debtor in your receivables portfolio.