Advance rate
Draft definition. Technical and editorial approval pending.
The percentage of eligible collateral value that a capital provider will lend against. It sets how much of each receivable you fund with debt and how much you must fund with your own equity. Advance rates apply to eligible collateral only, so ineligible receivables receive no advance at all regardless of their credit quality or how recently they were originated.
In practice
In a fictional case, USD 9m eligible collateral at 80% supports USD 7.2m before reserves, other deductions and the commitment cap. If the entire purchase costs USD 10m, USD 2.8m must come from another source, assumed to be equity here. Compare the effective borrowing amount, not the headline percentage alone.
Read this in context: Negotiating Terms.