What Is an Advance Rate?

An advance rate is the percentage of a stated value that a lender will actually fund. It is the same idea as LTV, expressed from the lender's side of the table, and it turns up most often in commercial and portfolio lending.

The part that catches people

An advance rate is meaningless until you know what it advances against. Two lenders can both say 80% and fund very different amounts:

• 80% of purchase price — the number on the contract.
• 80% of appraised value — which may be above or below what you paid.
• 80% of the lower of the two — the most common actual rule, and the least often quoted out loud.
• 80% of cost — purchase plus rehab. See LTV vs LTC.
• 80% of ARV — the finished value, which is a much larger base. See ARV.

So the useful question is never "what is your advance rate". It is "advance rate against what, and who determines that number".

Where it shows up

On a portfolio loan across several properties, the advance rate is usually applied to the aggregate value of the pool rather than property by property, which is part of why a blanket structure can let a stronger asset carry a weaker one. Blanket loans covers the structure.

On a CRE bridge deal it is applied to the as-is value, with a separate limit on total exposure once any capital works are funded.

Why it moves

Asset type, condition, liquidity of the market, and your experience. A lender advances more against something they are confident they could sell. That is the whole logic, and it explains most of the variation you will see between quotes on the same deal.

Leverage is set in underwriting and varies by program. Not a commitment to lend.