TL;DR: An advance rate is the proportion of a reference value that a lender is willing to lend against. In venture debt, facilities are often sized as a multiple of annual recurring revenue (an ARR multiple) or as a percentage of the most recent equity round, rather than against hard assets.
An advance rate expresses how much a lender will lend relative to some reference figure. In asset-based lending, that reference is the value of collateral. In venture debt, it is more commonly a measure of the business itself, most often annual recurring revenue. A facility sized at "1x ARR," for example, means the loan amount equals roughly one year of recurring revenue.
Lenders also reference a percentage of the most recent equity round or other measures when sizing facilities. Approaches vary, but the common thread in venture debt is that the facility is scaled to the company's revenue and trajectory rather than to its hard assets.
Flow Capital typically advances up to 1x ARR. Sizing reflects revenue profile, growth rate, capital structure, and financing history, consistent with how growth lenders underwrite the business rather than collateral. The result is a facility scaled to the company's recurring revenue base.
What does "1x ARR" mean? It means the facility is sized at roughly one year of the company's annual recurring revenue.
Is the advance rate the same as a borrowing base? Not quite. A borrowing base is the collateral-driven version used in asset-based lending. In venture debt, the advance rate is typically tied to revenue measures such as ARR.
Related terms: Annual Recurring Revenue · Venture Debt · Tranche · Asset-Based Lending
