The Rate Is on Page One. The Running Cost Is on Page Forty.
A term sheet leads with a rate because a rate is one number. What the facility costs to run is spread across forty pages of covenants, reporting schedules and fee tables, and it never gets totalled anywhere.
Take an illustrative case. A company needs a facility with an $8 million commitment and expects to draw an average of $6 million against it. Two offers arrive.
The first is asset-based, sized against receivables and inventory, priced at 7.25 percent all-in. The second is a cash-flow facility sized against EBITDA, priced at 8.00 percent. Seventy-five basis points apart, and the finance team has a clear answer.
What the first facility also requires
Asset-based lending works by watching the collateral, which means the facility comes with a monitoring program attached.
Borrowing base certificates, monthly, listing eligible receivables and inventory with the ineligibles stripped out. Field examinations twice a year, at roughly $15,000 each, billed to the borrower. An inventory appraisal annually, around $18,000. A collateral monitoring fee of about $2,000 a month. An agency and administration fee of $25,000 a year. An unused line fee of 37.5 basis points on the undrawn portion.
None of that is unusual or aggressive. It is what the structure is.
Against a $6 million average draw, interest at 7.25 percent is $435,000. Third-party monitoring, meaning the exams, the appraisal and the monitoring fee, is $72,000. The unused fee plus agency and administration is $32,500.
The line item nobody invoices
There is one more, and it is the one that never appears in a comparison because no one sends a bill for it.
A monthly borrowing base certificate is not a form. It is an aging report reconciled to the ledger, ineligibles identified and removed, concentration limits applied, inventory categorised, and the whole thing tied back and signed. Two days of an analyst’s month, plus review, is a fair estimate. Loaded, that is roughly $15,000 a year of finance team capacity, spent on a company that is usually already short of it.
Fifteen reporting events a year against four. The difference is not effort in the abstract, it is a specific number of days that come out of the same team that closes the month.
The comparison reverses
Add it up. The asset-based facility costs $554,500 a year all-in, which against a $6 million average draw is 9.24 percent.
The cash-flow facility carries the same unused fee, a $15,000 agency fee, and a quarterly compliance certificate that costs perhaps $3,000 of internal time. Interest at 8.00 percent on $6 million is $480,000. All in, $505,500, or 8.43 percent.
The facility quoted 75 basis points cheaper costs 82 basis points more to run. That is a swing of over one and a half percentage points, and none of it is hidden. It is all in both documents, just never on the same page.
What the monitoring actually buys
What the monitoring buys is the part a fair comparison has to include, because the conclusion is not that asset-based facilities are expensive.
The monitoring is what makes the advance possible. A lender watching a borrowing base monthly can lend against assets that a cash-flow lender cannot see well enough to fund at all, which often means a materially larger facility against the same business. It also holds up differently when earnings dip: a borrowing base tracks assets, so a soft quarter reduces availability gradually rather than tripping a leverage covenant.
For a business with volatile earnings and a strong asset base, that is worth well over 82 basis points. For a business with steady cash flow and few hard assets, it is a cost with no matching benefit.
The test is a short one, and it runs on figures a CFO already has. Take the largest quarterly drop in EBITDA over the last three years and apply it to the covenant in the cash-flow offer. If it trips, the asset-based structure is buying insurance the business demonstrably needs. Then take the asset-based sizing against the cash-flow sizing: if the borrowing base supports two million more than the EBITDA multiple does, the monitoring is buying capacity as well.
If neither is true, the monitoring is being paid for and not used.
So the error is not choosing the asset-based facility. It is choosing either one on a spread comparison that was never a like-for-like.
How Thalos Capital Approaches This
Thalos Capital works borrower-side, and comparing offers on a common basis is part of the origination rather than something that happens afterwards.
In practice that means building the all-in annual cost of each structure, with interest, fees, third-party monitoring and the internal reporting load in the same table, then setting that against what each structure actually delivers in advance rate and in tolerance for a bad quarter. The range runs from $50 thousand to $100 million and above, across the United States.
A CFO who signs on a spread has not made a bad decision. They have made a decision on one of the four numbers that determine the answer, and the other three were available the whole time in a document they were sent.
Most financing situations have more options than the borrower initially sees. A conversation is enough to map them. Submit your financing request at https://thaloscapital.com/contact.