The quoted margin is the smallest number in an asset-based deal. The advance-rate haircuts, the fee stack and the control of your cash set what it really costs to borrow.
Key takeaways
- The quoted margin is the smallest lever in an ABL deal. Advance rates, the fee stack and cash dominion decide the real cost.
- Advance rates split hard by collateral: 80 to 90% on receivables, 50 to 65% on inventory, and lower still once net-orderly-liquidation maths and reserves are applied.
- The all-in cost typically runs close to a full percentage point above the quoted margin once upfront, unused-line, monitoring and LC fees are counted.
- Cash dominion and the springing FCCR trigger decide who controls your working capital on your worst week. Read where they spring before you sign.
Private credit has become one of the core building blocks in modern alternative portfolios, and asset-based lending (ABL) is the part of it that most looks like plumbing rather than a coupon. If you are weighing an ABL facility as a borrower, the headline number you get quoted is the easy part. The hard part is working out what that number actually costs you once the advance-rate haircuts, the fee stack and the cash controls are counted.
Three things decide whether an ABL facility is cheap or expensive from where you sit: how the rate is built, what the terms really commit you to, and how the process runs from diligence to drawdown. The through-line is simple to state and easy to miss. The quoted margin is the smallest lever in the deal.
What asset-based lending is, and why the rate misleads
ABL is lending underwritten primarily against monetisable collateral rather than against a cash-flow forecast or an EBITDA multiple. The loan is governed by a borrowing base: a formula that multiplies eligible collateral, typically receivables, inventory and sometimes plant and equipment, by an advance rate. The OCC’s Comptroller’s Handbook on Asset-Based Lending frames it as lending where repayment depends on the conversion of collateral to cash and where the lender controls that conversion through monitoring and, often, cash dominion.
That control is the whole point, and it is why the quoted rate misleads. A cash-flow loan prices credit risk into a margin and largely leaves you alone between reporting dates. An ABL facility prices credit risk into the margin too, but it also charges you for the machinery that watches the collateral: field exams, appraisals, monitoring, unused-line fees, and a cash-sweep mechanism that can take your receipts and pay down the loan before you see them. Two facilities can both quote “SOFR + 400” and cost very different amounts once that machinery is switched on.
ABL sits inside private credit, a market that has grown to roughly $1.6 trillion in AUM by 2025 estimates, driven by banks stepping back from balance-sheet-heavy lending. For the broader context on where non-bank lending fits in a portfolio, our guide to private credit sets out the category. ABL is the collateral-controlled corner of it.
How the rate is built: the margin is the small part
Most ABL facilities are floating-rate. The lender starts with a reference benchmark, commonly SOFR for dollar deals and SONIA for sterling ones, and adds a spread. As at July 2026, SOFR sits at about 3.66%; the Bank of England’s SONIA benchmark is the sterling anchor. The spread is where credit quality, collateral type and structure get priced.
Where borrowers go wrong is treating the spread as the cost. When people quote asset based lending rates they usually mean this contractual margin, but in practice the all-in number is built from several layers, and the ones below the margin often move the total more than the margin itself:
- Margin over the benchmark. For a senior ABL revolver this typically runs SOFR plus 375 to 450 basis points; unitranche ABL structures run higher, SOFR plus 550 to 700, and first-loss or hybrid tranches higher still (2025 market read).
- Upfront or origination fee. Commonly 1.5% on a senior facility, rising to 2% or more on unitranche and first-loss structures.
- Unused-line fee. A charge on the undrawn portion of a revolver, often around 37.5 basis points. It sounds trivial until you size a facility much larger than your typical draw, at which point you are paying for headroom you are not using.
- Monitoring, field-exam and appraisal costs. Sometimes passed through, sometimes embedded. A mid-market facility can carry annual monitoring in the hundreds of thousands; one worked industry example puts annual monitoring at around $400,000 alongside a 250bp margin.
- Letter-of-credit fees. Often priced at the margin, around 250 basis points on the exposure, if the facility includes an LC sub-line.
The lender’s return is not the margin either. When utilisation is low or assets turn quickly, fee income and the unused-line charge can make up a meaningful share of what the lender actually earns. That is the same money leaving your account. The margin is where the negotiation feels like it is happening; the fee stack is where a lot of the cost actually lives.
The advance rate is the term that decides everything
Here is the assumption worth correcting: borrowers read the margin and think they understand the price. The advance rate matters more, because it decides how much cash the facility actually delivers against a given pile of collateral. A cheap margin on a stingy advance rate is an expensive loan per pound drawn.
The advance rate is the percentage of eligible collateral the lender will lend against. It varies sharply by collateral type, because it is really a bet on how fast and how cleanly the asset converts to cash in a wind-down. Receivables convert quickly and predictably, so they carry the highest rates. Inventory is slower and more exposed to obsolescence, seasonality and liquidation discounts, so it carries far lower rates, and often through a two-step calculation that shrinks the headline number further.
Advance rates and pricing by collateral type
Assembled from OCC guidance and 2025 lender market reads (indicative ranges; every deal is negotiated):
| Collateral / structure | Typical advance rate | Why the rate sits there |
|---|---|---|
| Eligible accounts receivable (senior) | 80 to 90% of eligible AR | Fast, predictable conversion; short-dated; low valuation uncertainty |
| Eligible AR (unitranche / first-loss) | 75 to 80% | Same collateral, thinner cushion for the wider spread |
| Inventory (finished goods) | 50 to 65% of value | Slower to sell; discount and obsolescence risk |
| Inventory on a net-orderly-liquidation basis | ~85% of a ~60% NOLV ≈ 51% of cost | The two-step calculation quietly halves the headline advance |
| Plant, machinery and equipment | Appraised value × LTV, often 70 to 80% of NOLV | Financeable but appraisal-dependent; refreshed at least annually |
| Specialist pools (SaaS receivables, BNPL) | ~55 to 80%, capped by quality | Newer collateral, tighter caps and eligibility tests |
Sources: OCC Comptroller’s Handbook, 2025 lender pricing read, borrowing-base worked example. Figures indicative, as at 2025 to 2026, and move with appraisals and quality tests.
Then the borrowing base takes further bites. Ineligible receivables come out first: anything aged past a set point, usually 90 days, plus cross-aged balances, related-party invoices and concentration above a cap on any single customer. After eligibility, the lender applies reserves: a dilution reserve for the rate at which invoices get credited, returned or disputed, plus reserves for rent, duties and outstanding LCs. The OCC handbook treats these dilution and reserve tests as core credit administration, not fine print.
The gap between the sticker advance rate and the cash you can draw on a given Tuesday is where the real cost hides. A borrower who negotiates hard on the margin and ignores the eligibility definitions and dilution reserve has optimised the wrong variable.
A worked all-in cost example
Take a facility quoted as SOFR + 400, which reads as roughly 7.66% all-in on drawn balances at a 3.66% SOFR. Watch what the structure does to that number.
Say you have $80m of eligible receivables and $70m of inventory at cost. The receivables advance at 85% gives $68.0m. The inventory, at an 85% advance on a 60% net-orderly-liquidation value, gives about $35.7m, an effective 51% of cost. Gross availability is $103.7m. Now subtract reserves: a 3% dilution reserve on gross AR ($2.4m), a landlord reserve ($2.0m) and an LC-and-duties reserve ($1.0m), totalling $5.4m. Net availability lands near $98.3m, working the figures in this industry example.
Now cost it. On $98.3m drawn at 7.66% you pay about $7.53m of interest a year. Add a 1.5% upfront fee amortised over a three-year term (roughly $0.49m a year on a $98.3m facility), a 37.5bp unused-line fee on, say, $20m of headroom ($0.075m), and $0.4m of annual monitoring and exam costs. That is about $8.5m a year against $98.3m actually drawn: an effective all-in cost near 8.6%, not the 7.66% on the term sheet. Nearly a full percentage point sits below the margin line, in fees and structure you did not negotiate as hard.
Push the same maths through a tighter deal, where inventory eligibility is thinner and the facility is oversized relative to draw, and the unused-line fee plus the advance-rate haircut widens the gap further. The lesson holds: cost the facility per pound you can actually draw, after fees, not per pound of the quoted margin.
The terms that bind: covenants and cash dominion
ABL keeps its covenant package light on paper and heavy in mechanism. Most facilities run a single financial covenant, a fixed-charge coverage ratio (FCCR), rather than the maintenance-leverage tests common in cash-flow lending. For larger borrowers the FCCR is usually “springing”: it is not tested at all until excess availability falls below a set threshold, at which point it kicks in. The borrower’s-perspective literature treats this springing structure as standard for upper-mid-market deals.
Cash dominion is the term borrowers underrate most. In full dominion, your customers pay into a lockbox the lender controls, and those receipts sweep straight to pay down the revolver before the cash reaches you. Many deals soften this into springing dominion: while excess availability stays above a set level, often around 15%, you keep control of your own collections; the moment availability drops below that line, full dominion switches on and the sweep begins. The trigger matters more than almost anything in the pricing grid, because it decides who controls your working capital on your worst week. A facility with a generous springing threshold is materially more borrower-friendly than one that sweeps from day one, even at the same margin.
For a borrower, three questions decide how binding the terms really are. Where does the FCCR spring, if it springs at all? Where does cash dominion trigger, and how much availability cushion sits above that line? And how are eligibility and reserves defined, since those quietly set your real borrowing capacity? The margin is on the first page of the term sheet; these are on the pages most borrowers skim.
The process: diligence, field exams and drawdown
ABL is process-heavy by design, and the timeline reflects it. A senior facility typically takes six to eight weeks to close, because the lender has to value and verify the collateral before lending against it, not just underwrite a forecast.
The sequence runs roughly like this. First, an initial field exam and collateral appraisal, done before closing, that tests your receivables ageing, dilution history and inventory valuation and sets the opening advance rates and reserves. Then documentation, where the eligibility definitions, reserves, covenant and dominion triggers get negotiated. Then closing and the first drawdown against the opening borrowing base.
After funding, the monitoring never stops. Lenders commonly book a field exam within 30 days of first funding, then run ongoing exams semi-annually, or quarterly for higher-risk borrowers, with appraisals refreshed at least annually and more often for volatile collateral. Weekly borrowing-base reporting has become the norm rather than monthly, so the lender is re-testing your eligible collateral almost continuously. That reporting burden is a real operational cost on your side of the deal, and it is part of what the monitoring fee is buying.
None of this is a reason to avoid ABL. For a business with strong receivables and lumpy working-capital needs, it can be the cheapest and most flexible capital available. The point is that you are buying a monitored, controlled facility, and the price of that control shows up in fees, reporting and cash mechanics, not only in the margin. For how ABL compares with other non-bank structures, see our private credit guide.
FAQs
What advance rate can a borrower expect on receivables versus inventory?
Eligible accounts receivable typically advance at 80 to 90%, because they convert to cash quickly. Inventory sits far lower, usually 50 to 65%, and often lower again once a net-orderly-liquidation calculation is applied. Equipment is lent against appraised value at a loan-to-value ratio.
Is the SOFR margin the real cost of an ABL facility?
No. The margin is one layer. Upfront fees, an unused-line fee on undrawn commitments, monitoring and field-exam costs, and any LC fees push the all-in cost typically close to a full percentage point above the quoted margin.
What is cash dominion and why does it matter?
Cash dominion lets the lender sweep your collections to pay down the revolver. Many facilities make it “springing”, so it only activates when excess availability falls below a set threshold, often around 15%. The trigger decides who controls your working capital when availability is tight.
How long does an ABL facility take to close?
A senior facility commonly takes six to eight weeks, because the lender runs a field exam and collateral appraisal before lending. Monitoring then continues with weekly borrowing-base reporting and periodic field exams.
Next read
- Private credit: the full guide covers where ABL fits in the non-bank lending landscape.