Lesson 18 of 25 · 6 min

Why adding a high-advance holding raises blended and may not raise capacity

A better average on a number already larger than the limit does not move the limit.

Add $200,000 of the same short-duration government fund at 85 percent, and hold every other row still. New market value is 6,032,795 + 200,000 = $6,232,795. New lending value is 3,277,251.25 + 200,000 × 0.85 = 3,277,251.25 + 170,000 = $3,447,251.25. The blend rises from 54.32 percent to 3,447,251.25 ÷ 6,232,795 = 0.55308, which is 55.31 percent.

Stated capacity does not rise. The facility limit is $2,400,000, and both $3,277,251.25 and $3,447,251.25 sit above it, so the minimum is $2,400,000 before the add and $2,400,000 after it. Drawn is still $1,847,220. Undrawn is still $552,780. The extra $170,000 of lending value joined the surplus above the limit, which goes from $877,251.25 to $1,047,251.25.

This is lesson 12 with the inequality running the other direction from lesson 14. Zeroing a row spent surplus and left the line still. Adding a high-advance row builds surplus and leaves the line still. The blend moves in both stories, which is why a blend is a poor reporter of capacity on a limit-bound book. The average is doing mix arithmetic. Capacity is doing a minimum.

The add would raise stated capacity only if lending value started below the limit, or if the add itself carried the sum through the limit from below. Neither is this book. A borrower who buys the government fund 'to increase the line' on these numbers increases the blend and the cushion, and does not increase the line. Those are three different quantities.

Raising the blend is easy on a limit-bound book. Raising the limit is a different document.

Key terms

Limit-bound book: A facility whose stated capacity equals the contractual limit because lending value is larger. This book.
Surplus add: An increase in lending value that lands entirely above the limit and so does not change stated capacity.
Mix arithmetic: What a blend does when a high-advance row is added: the average rises because the new weight sits above it.

Worked example

Two hundred thousand more government fund

March book plus $200,000 of the same government fund at 85 percent. Limit $2,400,000. Drawn $1,847,220.

New market value: $6,232,795
New lending value: $3,447,251.25
New blended advance rate: 55.31%
Stated capacity: $2,400,000
Undrawn: $552,780
New surplus above the limit: $1,047,251.25

Ninety-nine hundredths of a point on the blend, $170,000 more surplus, and a line that did not notice.

Check yourself

You add $200,000 of the government fund at 85 percent to the March book. What is the new blend, and what happens to stated capacity against the $2,400,000 limit?

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Educational only. Nothing in this lesson is investment, legal or tax advice, or a recommendation to enter into any transaction. Figures are illustrative and computed from the inputs stated in the lesson.