Average Daily Balance (ADB)
Average daily balance (ADB) is the average end-of-day balance in a merchant's business bank account across a measurement period (typically a month) — used in MCA underwriting as a key indicator of cash flow stability and capacity to absorb daily holdback debits.
Why This Matters
ADB matters more in MCA than in traditional lending because daily debits create immediate cash-flow risk. A merchant with $100K monthly revenue but $500 average daily balance has fragile cash management — daily holdback could routinely cause overdrafts. A merchant with $80K monthly revenue but $15K ADB has cushion for collection variance. Funders typically require minimum ADB thresholds (often $3K-$5K for sub-$50K deals, $10K+ for larger advances) to ensure realistic ability to service daily payments without continuous bounce risk.
Example
Merchant A: $60K monthly revenue, $1,200 ADB. Daily holdback at $300 would routinely cause near-overdraft. Underwriter declines or reduces deal size to $20K with $100/day debit. Merchant B: $60K monthly revenue, $8,500 ADB. Daily holdback at $300 well within cushion. Approves $40K deal at standard pricing.
Frequently Asked Questions
Frequently Asked Questions
What ADB threshold do MCA funders require?
Typical minimums: $2K-$5K ADB for deals under $25K, $5K-$10K for $25K-$75K deals, $10K+ for larger. Some funders specifying ADB as percentage of advance amount (e.g., ADB ≥ 15% of advance). Stricter ADB thresholds correlate with lower default rates.
Can a low ADB merchant qualify for MCA?
Sometimes, with reduced advance amount and shortened terms to manage cash flow risk. Cash-flow-management options (lockbox, weekly payment) may also enable funding for low-ADB merchants. Specialty funders accept lower ADB at premium pricing.