How to Compare Two ABL Term Sheets Side by Side: What the Rate Line Does Not Tell You

The second term sheet arrives and it is 25 basis points below the first. The natural instinct is to pick the cheaper one, or to go back to the first lender and ask them to match. That instinct is often wrong. Two ABL term sheets that quote different pricing are rarely comparable on pricing alone — the advance rates, the reserves, the covenant packages, the cash-management terms, the fee stack, and the operational overhead are all different, and any one of those items can move the effective cost of the facility by more than 25 basis points.

This is a practical, borrower-side guide to comparing two ABL term sheets side by side. Not a term-sheet negotiation piece — that comes later. This is the workmanlike exercise of putting the two documents on the same table and understanding what you are actually choosing between.

Start with usable availability, not headline commitment

The first number on both term sheets is the commitment amount — the maximum size of the facility. It is almost never the number that matters. What matters is the borrowing base availability the facility will actually produce on the borrower's actual collateral, then day-one availability net of reserves and closing costs.

Two term sheets on the same borrower can produce materially different day-one availability because of differences in:

• Advance rates. Lender A offers 85% on eligible A/R and 60% on eligible inventory. Lender B offers 87.5% on eligible A/R and 55% on eligible inventory. On a borrower with $10M eligible A/R and $6M eligible inventory, Lender A produces $12.1M of gross availability, Lender B produces $12.05M — essentially identical. But if the borrower's mix shifts toward inventory during the seasonal build, Lender A's 60% inventory rate becomes materially more valuable. The right way to read advance rates is against the borrower's actual collateral mix over the seasonal cycle, not against the current balance sheet snapshot.
• Eligibility criteria. Both term sheets probably use the same buckets (past-due exclusion, cross-aged exclusion, government receivables, foreign, related-party, concentrations), but the specific thresholds move real dollars. Lender A caps single-customer concentrations at 15%. Lender B caps them at 20%. On a borrower with a top customer at 22%, that is $200,000-$300,000 of ineligibles that shows up on one certificate and not the other. See our eligibility and ineligibles guide for the standard buckets.
• Reserves. This is where term sheets diverge the most. Lender A imposes a 5% dilution reserve. Lender B imposes a 3% dilution reserve but adds a landlord reserve of one month rent per uncovered location, an accrued-payroll reserve, and a customer-concentration reserve. The reserve stack can easily move 2-4% of gross availability. Always price the reserve stack, not the advance rate.

Build both term sheets into a single borrowing-base model against the same collateral snapshot, then run the model against the seasonal peak and trough. The number that matters is not "commitment," it is "day-one availability" and "peak-season availability."

Read the pricing stack, not the rate

The "rate" line on a term sheet is one number in a stack of six or seven fees. The all-in cost is what matters.

• Interest rate. SOFR (or the base rate) plus a spread, sometimes with a floor. Compare spreads on the same base. If one term sheet quotes SOFR + 300 and the other quotes Prime + 100, they are not directly comparable — pull them onto the same base before comparing.
• Unused-line fee. Typically 25-50 bps on the undrawn commitment. Sounds small; on a $20M commitment with $10M average outstanding, a 50 bps unused fee is $50,000/year — the same economic weight as roughly 50 bps on outstandings.
• Letter-of-credit fee. Typically 100-250 bps on LC face amount. If the borrower runs a meaningful LC program (payment LCs, supply-chain LCs, insurance LCs), a 100 bps difference on $5M of LCs is $50,000/year.
• Closing fee. Typically 0.25%-1.0% of commitment, paid at close. On a $20M commitment, a 50 bps difference in the closing fee is $100,000 — the same economic weight as roughly 100 bps on average outstandings for a year, but paid up front.
• Annual facility/agent fee. Often 0.25%-0.5% of commitment, paid annually.
• Field-exam and appraisal costs. Passed through to the borrower. Two field exams per year at $10-25K each, one inventory appraisal every 12-18 months at $8-20K, one real-estate appraisal at closing where applicable. These are not usually on the term sheet but they are real costs. See our field-exam guide.
• Legal and documentation costs. Typically $75-200K at closing on middle-market ABL, more on syndicated deals or complex structures. Passed to borrower.

Put every fee into a two-year all-in cost model. Then compute effective cost per dollar of average outstandings. It is not uncommon to see two term sheets that look 25 bps apart on the rate line but are actually 100+ bps apart on all-in cost — usually driven by unused-line fee, closing fee, or a fee-heavy structure that only makes sense if the borrower has high utilization.

Compare the covenant package like an operator

Covenants are not just default triggers — they are constraints on how the business will be run. Two term sheets can propose very different covenant packages on the same borrower.

Financial covenants

• Fixed Charge Coverage Ratio (FCCR). The most common ABL financial covenant. Some term sheets set it at a hard 1.10x tested quarterly. Others set it at a springing 1.00x tested only when excess availability falls below a threshold. Which one applies to this borrower's operating pattern matters more than the ratio itself. See our springing FCCR guide.
• Maximum senior debt. Sometimes included, sometimes not. When included, it caps how much other debt the borrower can carry.
• Minimum EBITDA. Rare in modern ABL but shows up in cash-flow-adjacent structures. Very restrictive when it appears.

Operational covenants

• Reporting frequency (weekly borrowing base? monthly? both?)
• Cash dominion (full? springing? threshold-triggered?)
• Permitted acquisitions and dispositions (baskets, thresholds, consent rights)
• Permitted indebtedness (baskets, subordination)
• Restricted payments (dividends, distributions, buybacks — what is allowed)
• Landlord waivers, bailee waivers, and access agreements required at closing

A term sheet that quotes 25 bps lower but requires a full weekly borrowing base, full cash dominion, and landlord waivers on every location is not cheaper — it is more expensive to operate.

Read the cash-management and treasury terms

Cash management is often the most operationally consequential difference between two term sheets.

• Deposit account requirements. Lender A requires all operating deposits to move to the lender's bank. Lender B allows the borrower to keep primary deposits at the incumbent bank subject to a DACA. If the borrower has embedded operational relationships (ACH files, payroll, treasury workstation), moving primary deposits is a real operational cost. See our DACA guide.
• Cash dominion trigger and mechanic. Full dominion (all cash sweeps daily) is more operationally invasive than springing dominion (only when excess availability falls below a threshold). Both are fine when the business is running well; the difference is felt during a soft quarter.
• Swingline and same-day funding. Some facilities offer a swingline for same-day advance requests. Others require a two-day funding cycle. For borrowers with daily payables timing, this is a material operational difference. See our swingline funding guide.

Compare the amendment and workout flexibility

This is the part borrowers rarely think about at closing and always wish they had thought about later.

• Single lender vs. syndicated. A single-lender facility can amend on a bilateral conversation. A syndicated facility runs through Required Lenders and sacred-rights voting mechanics — some amendments become much harder. See our voting thresholds guide.
• Termination and prepayment. Compare early-termination fees, minimum-term windows, and refinancing exceptions. Some term sheets carry no ETF; some carry a 2% ETF in year 1. See our early-termination fees guide.
• Yank-a-bank and lender replacement. On syndicated deals, whether the borrower has the right to replace a defaulting or non-consenting lender at par matters when the facility needs to be amended.

Do not weight relationship depth too high, but do not ignore it

The intangible: does the lender know the industry, has the credit officer done this collateral before, is the field-exam team good, is the servicing team responsive. These items do not fit into a spreadsheet, but they are real. The way to test relationship depth is to ask for a call with the credit officer (not just the RM) and to talk to two or three existing borrowers of the lender in comparable industries.

Do not let a "good relationship" line item defeat 75 bps of real economic difference. But do not treat identical economics as identical facilities either.

The side-by-side worksheet

Here is the practical worksheet — a two-column comparison, one column per term sheet, that a CFO can put together in an afternoon.

1. Commitment amount
2. Advance rate on A/R, inventory, other collateral
3. Eligibility criteria (concentration caps, cross-aging, foreign, government, related-party, past-due window)
4. Standing reserves (dilution, landlord, payroll, other)
5. Day-one availability net of reserves and closing costs
6. Peak-season availability
7. Interest rate (spread over comparable base)
8. Unused-line fee
9. LC fee
10. Closing fee
11. Annual facility/agent fee
12. Two-year all-in cost estimate
13. Financial covenants (FCCR level, testing basis, springing vs. hard)
14. Reporting frequency (weekly/monthly BBC, monthly financials)
15. Cash dominion (full/springing/threshold)
16. Deposit account requirements
17. Swingline availability and funding cycle
18. Field-exam and appraisal cadence and cost pass-through
19. Legal and documentation cost estimate
20. Early-termination fee and minimum-term window
21. Amendment mechanics (single lender vs. syndicated, Required Lenders threshold)

Put both term sheets against those 21 items and the honest comparison usually looks different from the first impression.

Where DCE fits

Don Clarke — SFNet Hall of Fame 2021, Lifetime Achievement Award, author of "Asset Based Lending Disciplines" (the first ABL textbook), and trainer of more than 5,000 professionals at GE Capital, JP Morgan Chase, Lloyds, and Barclays — has spent decades sitting on both sides of ABL term-sheet negotiations. The one repeated pattern is that borrowers pick the cheaper-looking term sheet, then spend the next 24 months paying for a fee structure or an operational term they did not fully read at closing. DCE advises borrowers on term-sheet comparison — building the availability and all-in cost model, translating the covenant and cash-management language into what it will actually feel like to operate, and framing the follow-up questions that get both lenders to their best final terms. We advise on term sheets. We do not negotiate on the borrower's behalf and we are not the lender.

ABLC (ablc.net) is DCE's sister firm serving lenders with due diligence, field examination, and training services.

Educational only; not legal, tax, or investment advice. Every term sheet is specific to the borrower and the lender. Borrowers should work with qualified counsel on actual language and terms.