Inventory Financing Glossary: ABL Terms Borrowers Need to Know

There is no single reference for inventory-financing vocabulary. When a CPG founder reads a term sheet and asks what “NOLV advance basis” or “cleanup period” means, the answer gets stitched together from a dozen scattered lender pages, each defining one term in isolation.

This glossary collects the core ABL terms, including advance rate and borrowing base, in one place, in the order you actually meet them: from how a lender values your inventory, through how they monitor it, to how you draw and repay.

Keep it open while you read a term sheet. Each definition is self-contained and written in the inventory-financing context, not the generic dictionary version. The adjacent products at the end link out to dedicated explainers so you can go deeper without losing your place.

Core Collateral Terms: Advance Rate and Borrowing Base

These four terms decide how much you can borrow against your stock. They appear first because valuation comes before everything else.

Advance rate. The percentage of your inventory’s appraised value a lender will lend against. For inventory it typically runs up to 65% of book value or 80% of NOLV, lower than the 70% to 90% common for receivables because stock is harder to convert to cash.

The OCC’s Comptroller’s Handbook on Asset-Based Lending describes a conservative convention of 80% of net orderly liquidation value, with higher rates of 85% to 90% appearing when lenders compete.

Borrowing base. The formula-driven ceiling on what you can draw at any moment. It equals your eligible inventory multiplied by the advance rate, often combined with eligible receivables at their own rate. As inventory rises and falls, the borrowing base moves with it, so your available credit is recalculated on every reporting cycle.

Eligible vs. ineligible inventory. Eligible inventory is stock the lender counts toward your borrowing base; ineligible inventory is excluded from the calculation but still sits inside the lender’s collateral pool. Slow-moving, obsolete, and consigned goods are commonly ineligible. Per the OCC handbook, consignment goods are ineligible because they are owned by another party.

Sell-through. The rate at which stock converts to sales over a period, calculated as units sold divided by units received. Lenders read it as a demand signal: faster sell-through means collateral that turns into cash on schedule. According to SPS Commerce’s SupplierWiki, a sell-through rate at or above 80% is generally considered strong, though it varies by category and season.

Underwriting and Monitoring Terms

Once a lender funds against your inventory, they watch it. These terms describe how they verify the collateral is worth what your reports claim.

Field exam. A periodic, on-site audit of your inventory records, accounting controls, and borrowing-base reporting, usually performed by a third-party examiner the borrower pays for. Cadence is commonly quarterly, tightening when availability is under pressure; the OCC handbook describes loan structures with quarterly field examinations and semiannual collateral appraisals.

Inventory appraisal and NOLV. An appraisal sets the value your advance rate is applied to, and that value is usually net orderly liquidation value (NOLV), not book cost. NOLV is the net proceeds an appraiser estimates your inventory would bring in an orderly, non-rushed liquidation after sale costs. It sits below book value, which is why an “80% advance rate” lends 80% of NOLV, not 80% of what you paid.

Marketability. How readily a category of inventory can be sold in a liquidation. Finished goods and commodity-like raw materials are the most marketable and earn the highest advance rates; specialized work-in-process or branded perishables earn less. Marketability is the quality behind your advance rate.

Dilution. The gap between gross sales and what actually gets collected, caused by returns, markdowns, allowances, and credits. High dilution erodes the value of the collateral a lender is counting on, so persistent returns or chargebacks can lower your advance rate or push categories into ineligible.

Reserves. Amounts a lender carves out of your borrowing base to cover risks the advance rate alone does not, such as rent owed to a third-party warehouse, unpaid taxes, or anticipated dilution. A reserve reduces availability without changing the stated advance rate, so two borrowers with identical advance rates can have very different access to cash.

Structure and Repayment Terms

These terms govern how the facility behaves day to day: how you draw, how availability moves, and how repayment works in an inventory context.

Revolving line vs. term loan. A revolving line lets you draw, repay, and redraw against your borrowing base as inventory cycles, which fits the rise-and-fall of stock. A term loan advances a fixed sum repaid on a set schedule, which fits equipment or real estate better than inventory. Inventory facilities are usually revolving for that reason.

Draw. A single advance taken against available borrowing-base capacity. You draw to fund a production run or inventory build, then repay as that stock sells, freeing capacity to draw again.

Availability. The amount you can actually draw right now: your borrowing base minus what you already owe and minus any reserves. Availability is the number that matters most week to week, because it reflects your real, current access to cash rather than the headline facility size.

Seasonality adjustment. A negotiated change to advance rates or eligibility that accounts for predictable swings in your stock cycle, such as a pre-holiday build for a CPG brand shipping to big-box retail. It lets the borrowing base expand when you are stocking up and tighten as the season unwinds.

Cleanup period. A required window, often once a year, when you must pay the revolving balance down to zero or a low threshold for a set number of days. It proves the line funds working capital rather than permanent debt, and missing it can trigger covenant problems.

Adjacent Financing Terms (and Where to Go Deeper)

These products sit next to inventory financing and often appear in the same conversation. Each gets a one-line definition here; follow the link for the full breakdown.

Factoring. Selling your unpaid invoices to a third party at a discount for immediate cash, repaid when your customer pays. See how it compares in our guide to purchase order financing versus factoring.

Purchase-order financing. Funding the supplier and production costs of fulfilling a specific incoming retailer order, before the goods ship. Read more on purchase order financing for big retail orders.

Accounts-receivable financing. Borrowing against the value of outstanding invoices while you retain ownership and collection, distinct from selling them outright. See our overview of retail supplier cash flow solutions.

Asset-based lending (ABL). A revolving facility secured by a mix of working assets, usually receivables and inventory together, governed by a borrowing base. Compare it head to head in PO financing vs. factoring vs. ABL.

For the full decision framework on which structure fits your situation, start with our pillar guide: PO vs. inventory vs. ABL vs. AR financing.

Match Your Inventory to the Right Lender

Knowing the vocabulary is step one. Getting the right financing structure is step two. Bridge manages the process from request to funded for CPG brands and retail suppliers who need inventory and working-capital financing. We package your deal to meet real underwriting criteria, coordinate lender alignment, and stay involved through closing. Request financing.

FAQs

What is a typical advance rate for inventory financing?

Inventory advance rates typically run up to 65% of book value or 80% of NOLV, lower than the 70% to 90% common for accounts receivable because inventory is harder to convert to cash. The OCC’s Comptroller’s Handbook describes a conservative convention of 80% of net orderly liquidation value, with rates of 85% to 90% appearing when lenders compete.

How is a borrowing base calculated?

A borrowing base is the formula-driven limit on what you can draw, equal to your eligible inventory multiplied by the advance rate, often combined with eligible receivables at their own rate. It is recalculated each reporting cycle, so available credit rises and falls as your eligible collateral changes.

What counts as ineligible inventory?

Ineligible inventory is stock excluded from the borrowing base calculation but still inside the lender’s collateral pool. Slow-moving, obsolete, and consigned goods are commonly ineligible; the OCC handbook notes consignment goods are ineligible because they are owned by another party.

What is a good sell-through rate?

According to SPS Commerce’s SupplierWiki, a sell-through rate at or above 80% is generally considered strong, though the threshold varies by product category and season. Lenders read sell-through as a demand signal, because faster turnover means collateral that converts to cash on schedule.

What is a field exam in inventory financing?

A field exam is a periodic, on-site audit of your inventory records, accounting controls, and borrowing-base reporting, usually run by a third-party examiner the borrower pays for. Cadence is commonly quarterly or semiannual, tightening when availability is under pressure.