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Effective Advance Rate
Last Updated: Jun 7, 2019
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Effective Advance Rate means a fraction (i) the numerator of which is equal to the outstanding loan balance against a particular category of collateral and (ii) the denominator of which is the gross amount of collateral in that category. The effective advance rate is generally lower than the stated advance rate because availability is generated only from eligible collateral, net of any ineligible items or reserves that may be required. The effective advance rate can be calculated based on the actual outstanding loan balance at a particular point in time, or based on the maximum amount that a customer could borrow against the collateral once ineligible items and reserves are taken into account. The effective advance rate can also be calculated for an entire loan facility. In that case the numerator would be the maximum amount a customer could borrow divided by the total value of all of the collateral securing the loan.