ABL Refinancing Proposals: How to Compare Lender Term Sheets Before You Move Your Facility

You did the hard part. You started early, picked the right lenders, and ran a real process. Now five ABL refinancing proposals are sitting on your desk — and no two of them are written the same way. One quotes the tightest spread but caps inventory at a lower advance rate. One offers the highest availability but loads a discretionary dilution reserve and full cash dominion from day one. One has a clean covenant package and a punishing prepayment grid. The CFO's instinct is to rank them by spread and pick the lowest. That instinct is wrong, and it is the single most expensive mistake in an otherwise well-run refinancing.

The lowest headline rate is rarely the cheapest facility, and the highest quoted advance rate rarely delivers the most usable availability. A term sheet is a bundle of nine interacting variables, and lenders deliberately compete on different ones — knowing that most borrowers only compare the first. This post gives you the framework to normalize a stack of non-comparable proposals into one apples-to-apples decision, on the two dimensions that actually matter: effective cost and effective availability.

I have spent five decades inside these structures — I wrote Asset Based Lending Disciplines, the first textbook on the discipline, trained more than 5,000 lenders and field examiners, and was inducted into the SFNet Hall of Fame in 2021. Refinancings are roughly half of what we place. The piece on when to refinance your ABL facility covers the signals and timing; the refinancing playbook covers how to run the competitive process. This post picks up where those leave off — the moment the proposals are in hand and you have to choose.

Why Term Sheets Are Built to Be Hard to Compare

A lender's term sheet is a sales document as much as a credit document. Each lender knows its strengths and writes the proposal to lead with them. The bank-owned ABL group leads with the lowest spread and lets the tighter covenant package sit in the fine print. The specialty platform leads with the highest advance rate and the willingness to lend on collateral the bank excludes, and recovers the risk in fees and a wider unused-line charge. The private credit fund leads with speed and certainty of close and prices for it.

None of this is deception — it is positioning. But it means the proposals arrive in five different shapes, and a borrower who lines them up by spread alone is comparing the one variable each lender chose to make look good. The job is to strip the positioning out and rebuild every proposal on the same two questions: what will this facility actually cost me per year, and how much capital will it actually let me draw?

The Nine Dimensions of an ABL Proposal

Every ABL term sheet, regardless of how it is laid out, can be decomposed into nine dimensions. Score each proposal on all nine before you rank anything.

1. Economics (the full pricing stack, not the spread)

The spread over SOFR is the headline, but the all-in cost has at least six components: the drawn spread, the unused-line fee on undrawn commitment, the closing or upfront fee, the annual agency or servicing fee, the collateral monitoring and field-exam charges, and the letter-of-credit fronting and usage fees. A proposal at SOFR + 200 with a 0.375% unused fee and a $25,000 annual monitoring charge can easily cost more than a proposal at SOFR + 225 with a 0.25% unused fee and monitoring bundled — depending on your average utilization. We broke the full stack down in how interest rates and pricing structure work in ABL. You cannot compare economics until you compute all-in cost at your expected utilization, not at full draw.

2. Availability (advance rates and the eligible pool they apply to)

A higher advance rate on a smaller eligible pool can yield less availability than a lower rate on a broader one. One lender quotes 90% on AR but defines eligibility tightly — 60-day aging cutoff, 15% concentration cap, foreign AR excluded. Another quotes 85% but allows a 90-day window, a 20% cap, and credit-insured foreign AR. The 85% lender may deliver more drawable dollars. The mechanics of how the rate meets the pool are covered in how lenders calculate advance rates on AR and inventory. Always model availability off your own collateral, run through each proposal's eligibility definitions — not off the headline percentage.

3. Reserves (formulaic vs discretionary)

Reserves are subtracted after the advance rate and can quietly remove 10–25% of the gross borrowing base. The critical distinction between proposals is not the size of the opening reserve — it is whether reserves are formulaic (defined by a stated calculation the lender cannot change at will) or discretionary (the lender may impose or raise them in its "reasonable credit judgment"). A proposal with a slightly larger formulaic dilution reserve is almost always better than one with a smaller reserve plus broad discretion to add more. The full menu and how to negotiate two-way, formulaic reserves is in ABL borrowing base reserves.

4. Reporting burden

Monthly borrowing base certificates are standard; weekly or daily reporting is a real operating cost. Some proposals require a full BBC monthly with weekly AR rollforwards; others trigger more frequent reporting only when availability tightens. Field-exam frequency (annual vs semi-annual vs quarterly) and appraisal cadence belong here too. The borrower's finance team pays this cost in hours every month for the life of the facility. See how to read a borrowing base certificate for what each reporting cycle actually demands.

5. Covenants

The modern clean-credit default is a single springing fixed-charge coverage ratio that activates only when excess availability drops below a defined threshold. Compare proposals on: whether there are maintenance financial covenants at all, the FCCR level, the springing trigger threshold (a trigger at 10% of the line is far less intrusive than one at 15%), and any capex, restricted-payment, or distribution limits. The springing-trigger mechanics are detailed in springing FCCR covenants and excess availability triggers, and the negotiable points across the whole document in ABL term sheet key terms and negotiation.

6. Collateral scope and cash control

Does the facility take AR only, or AR plus inventory plus equipment plus IP? A broader collateral scope can mean more availability but also more diligence, more appraisals, and more reporting. Cash control is the operationally heaviest item here: full cash dominion (every dollar swept to a lender-controlled account daily) versus springing dominion (the sweep activates only on a defined trigger). Full dominion from day one is a material drag on cash-flow flexibility. The operational difference is laid out in full vs springing cash dominion.

7. Fees and prepayment

Beyond the closing fee in dimension one, the prepayment premium is the fee borrowers forget at proposal stage and regret at the next refinancing. A 2%/1%/0.5% declining grid on a $30M commitment is a $600,000 exit cost in year one that the next deal has to overcome. The exit fee is paid by your next facility, so it is negotiated cheapest now, at term sheet — never at payoff. The full payoff-side mechanics are in ABL exit and payoff mechanics.

8. Lender behavior and relationship quality

This is the dimension that does not appear on the term sheet and matters more than any single number. How does this lender behave when a borrower trips a covenant, asks for an overadvance during a seasonal peak, or needs an amendment? A lender with a slightly higher spread that works with you through a tight quarter is worth more than a cheaper lender that imposes reserves and accelerates reporting the moment availability dips. Reference-check the relationship the way you would a key hire — talk to two or three current borrowers. Our guide to choosing the right ABL lender covers how lender categories differ in posture.

9. Close certainty

A proposal is an indication, not a commitment. Certainty of close depends on the lender's credit-committee process, hold-size capacity for your facility, field-exam and appraisal readiness, and track record of honoring indications. On a refinancing with a hard maturity date, a lender that closes on time at SOFR + 215 beats a lender that retrades you at SOFR + 200 three weeks before maturity. The closing choreography — payoff letter, UCC-3 terminations, DACA swaps — is in the exit and payoff piece, and the realistic timeline in how long an ABL loan takes to close.

The Comparison Framework: One Table, Nine Rows

Build a single side-by-side grid with the nine dimensions down the side and each lender across the top. Resist the urge to collapse it to a spread comparison. The discipline of filling in all nine rows for every proposal is what surfaces the trade-offs the lenders buried.

Dimension	What to capture for each lender
1. Economics	Drawn spread, unused fee, closing fee, agency fee, monitoring/exam charges, LC fees — reduced to one all-in annual cost at expected utilization
2. Availability	AR advance rate, inventory rate, eligibility definitions, modeled drawable availability off your collateral
3. Reserves	Opening reserves and — critically — formulaic vs discretionary
4. Reporting	BBC frequency, AR rollforward cadence, field-exam and appraisal frequency
5. Covenants	FCCR level, springing trigger threshold, capex/distribution limits
6. Collateral & cash control	Collateral classes pledged, full vs springing dominion and trigger level
7. Fees & prepayment	Prepayment grid, make-whole, minimum-interest provisions
8. Lender behavior	Reference checks, posture on amendments and overadvances, coverage stability
9. Close certainty	Hold-size fit, committee process, field-exam readiness, track record on indications

A Worked Example: When the Lowest Spread Loses

Take a distributor with a $30M commitment need, expecting to draw an average of $20M against a $25M borrowing base, refinancing a facility that matures in five months. Two proposals arrive.

Lender A quotes SOFR + 200, a 0.25% unused fee, 85% on AR with a 90-day eligibility window and a 20% concentration cap, a formulaic dilution reserve, springing cash dominion, and a 2%/1%/0% prepayment grid.

Lender B quotes SOFR + 185 — 15 bps tighter — a 0.50% unused fee, 85% on AR but with a 60-day window and a 15% cap, a discretionary dilution reserve, full cash dominion from close, and a 3%/2%/1% prepayment grid.

Ranked by spread, Lender B wins. Rebuilt on effective cost and effective availability, it does not:

Line	Lender A	Lender B
Drawn cost on $20M avg @ SOFR (assume 4.3%)	~6.30% → $1.26M	~6.15% → $1.23M
Unused fee on $10M undrawn	0.25% → $25K	0.50% → $50K
Effective availability vs need	Full $25M base eligible	Tighter window + cap drop ~$2M of eligible AR
Discretionary reserve risk	None — formulaic	Lender may add reserves at its judgment
Cash flow flexibility	Springing dominion preserves it	Full dominion from day one
Year-one exit cost if refinanced	2% → $600K	3% → $900K

Lender B's 15 bps of spread savings (~$30K) is more than erased by the higher unused fee, and that is before the tighter eligibility removes ~$2M of drawable availability, the discretionary reserve creates open-ended downside, full dominion adds operational drag, and the prepayment grid makes the next refinancing $300K more expensive. The proposal that looked cheapest is the most expensive facility on every dimension that compounds. (Illustrative figures; every facility is modeled on its own collateral and utilization.)

How to Use the Framework to Negotiate, Not Just Choose

The comparison grid is not only a selection tool — it is a negotiation tool. Once you can see that Lender A has the better reserve structure and Lender B has the tighter spread, you take each lender's best dimension back to the others and ask them to match it. In a properly run process, pricing typically tightens 25–50 bps between the first round and best-and-final, and the structural items — reserve formulas, dominion triggers, eligibility windows — often move further than the spread because they cost the lender less to concede. The borrower who negotiates from a completed nine-dimension grid extracts concessions the borrower who negotiates from a spread number never sees.

One discipline matters above all: do not let any single lender see that you have run out of time or alternatives. The moment a lender knows you cannot switch before maturity, every dimension reprices in the lender's favor. Certainty of your own timeline is the foundation of the whole negotiation — which is why the timing of when you start drives the terms you can extract at the end.

The Comparison Mistakes We See Most

• Ranking by spread. The spread is one of six pricing components and one of nine total dimensions. It is almost never the binding cost.
• Comparing headline advance rates. A rate is meaningless without the eligibility definition it applies to. Model availability off your own collateral through each proposal's screens.
• Ignoring discretionary reserve language. "Reasonable credit judgment" is the most expensive phrase in an ABL term sheet. A formulaic reserve you can see beats a discretionary one you cannot.
• Forgetting the prepayment grid. The exit fee is invisible at proposal stage and painful at the next refinancing. Negotiate it down now.
• Underweighting lender behavior and close certainty. The two dimensions that never appear as numbers are the two that determine whether the facility serves you through a tight quarter and whether it closes before your maturity.
• Negotiating one proposal in isolation. A term sheet negotiated against real alternatives gets material concessions; one negotiated alone gets marginal ones.

What We Do at Don Clarke Enterprises

When we run a refinancing, we do not hand the borrower a stack of proposals and wish them luck. We rebuild every term sheet on the same nine dimensions, model effective availability off the borrower's actual collateral through each lender's eligibility definitions, reduce every pricing stack to one all-in annual cost at expected utilization, and surface the discretionary-reserve and dominion language that the headline numbers hide. Then we take each lender's best dimension back to the others and run the best-and-final round. With 60+ active lender relationships across banks, specialty platforms, and private credit, and four decades of knowing how each lender underwrites and where each will flex, we turn a confusing stack of non-comparable proposals into one clear, fully-negotiated decision.

If you have proposals in hand — or are about to launch a process and want the comparison framework built before the term sheets arrive — call us at (954) 962-0099, email info@donclarkeenterprises.com, or submit the situation through the form below. We will come back inside 48 hours with a straight read.