# Advance Rate

> An advance rate is the percentage of an asset's value that a lender is willing to finance upfront — for example, 85% of an invoice's face value — with the remainder held back or covered by your own funds.

## Key takeaways
- An advance rate is the percentage of an asset's value a lender funds upfront — for example, 85% of an invoice — with the remainder held back as a reserve.
- You'll see it most in invoice factoring and equipment or asset-based lending, where the held-back reserve is released (minus fees) once the asset pays out.
- A higher advance rate isn't automatically better, since it can pair with higher fees, so weigh it against the total cost.

## How an advance rate works

An **advance rate** is the share of an asset's value that a lender will fund
upfront. Rather than lending the full value of collateral, lenders advance a
**percentage** of it and keep a cushion to protect against non-payment, price
swings, or default. You'll see advance rates most often in **invoice factoring**,
**equipment financing**, and other **asset-based** lending.

### Where you'll see it

- **Invoice factoring:** the factor advances a portion of each invoice now and
  releases the rest (the **reserve**) when your customer pays, minus its fee.
- **Equipment and asset-based loans:** the lender funds a percentage of the
  asset's appraised or purchase value.

### A concrete example

Imagine you factor a **$10,000** invoice at an **85% advance rate**. You receive
**$8,500** right away. When your customer pays the invoice in full, the factor
releases the remaining **$1,500** reserve, minus its factoring fee. The 85% is
the advance rate; the 15% held back is the reserve.

### What to watch for

- **Higher isn't automatically cheaper.** A generous advance rate can pair with
  higher fees, so weigh it against the total cost.
- **Reserve timing.** Know when and how the held-back portion is returned to you.
- **Risk-based pricing.** Weaker customer credit or less liquid collateral
  usually means a lower advance rate.

When comparing asset-based options through Hoss Capital, look at the advance rate
and the fees together so you can see both how much cash you'll get now and what
it truly costs.

---
Canonical: https://hoss-capital.pages.dev/glossary/advance-rate/