Advance Rate
What does it mean
An Advance Rate represents what percentage of the value of collateral a bank is willing to lend up to.
Why does it matter
Effectively an Advance Rate discounts the value of the collateral down to the value a bank would expect to receive if the collateral was liquidated. This Advance Rate is set by a bank’s loan policy. The allowable Advance Rate varies by collateral type (some collateral is better than other collateral (Cash in a CD versus a 1992 Ford Ranger Pickup). Some of the factors that contribute into the appropriate advance rate are:
- Age of Collateral
- Uniqueness of Collateral
- Cost to Sell Collateral
- Individual Bank Experience with Liquidation
Other Relevant Terms
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Greetings! I'm Clay Sharkey, and there is nothing I like more than assisting others in achieving their goals. I firmly believe that by enhancing a banker's understanding of their customer's' business, they can provide superior service. This superior service, in turn, leads to stronger relationships for the bank, improved performance for the businesses, and better experiences for our communities. Win-win-win.
