Advance Rate
Definition
The advance rate is the percentage of an asset's value or a business's monthly revenue that a lender is willing to provide as funding. In invoice factoring, the advance rate is the percentage of the invoice value paid upfront (typically 80–90%). In MCAs, the advance rate refers to how much capital a provider will extend relative to the business's average monthly revenue (typically 1–1.5x monthly revenue). In asset-based lending, the advance rate is the percentage of collateral value the lender will finance. Higher advance rates mean more capital but may come with higher costs.
Example
A company factors a $100,000 invoice with an 85% advance rate. They receive $85,000 immediately. When the customer pays the invoice, the factoring company releases the remaining $15,000 minus their factoring fee.
Related Terms
Factor Rate
A factor rate is a multiplier used to determine the total cost of a merchant cash advance or short-t...
Merchant Cash Advance (MCA)
A merchant cash advance is a financing arrangement where a business receives a lump sum of capital i...
Invoice Factoring
Invoice factoring is a financing arrangement where a business sells its outstanding invoices (accoun...
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