Glossary

What is average daily balance (ADB) in lending?

Average daily balance (ADB) is the mean of a bank account's end-of-day balances over a defined period — typically three to six months of statements. In MCA and small business lending, ADB measures the cash cushion a merchant maintains, which indicates whether the business can sustain daily remittances without the account regularly running dry.

How ADB is used in MCA underwriting

ADB is calculated by summing the end-of-day balance for each day in the statement period and dividing by the number of days. Underwriters use ADB alongside average monthly deposits to assess two different dimensions of cash flow: deposits measure revenue flow-through, while ADB measures how much cash the business typically keeps on hand.

A business with high deposits but a very low ADB is spending most of its revenue as quickly as it comes in — potentially with little margin to absorb a missed payment or revenue dip. A business with consistent ADB above the proposed daily remittance amount has a more sustainable cash cushion.

ADB thresholds and advance sizing

Many funders use a minimum ADB as part of their eligibility criteria — for example, requiring ADB to be at least 10–20% of the proposed advance amount. Advance sizing is also often calibrated against ADB: the daily remittance should not exceed a defined percentage of ADB to leave the merchant operating room. These thresholds vary by funder and product but should be consistently applied and documented in the underwriting record.

FAQ

Average Daily Balance — common questions

Is average daily balance the same as average monthly balance?

Related but different. Average daily balance is the mean of each day's ending balance. Average monthly balance is typically the mean of the opening and closing balance for the month, or the average of daily balances within a month. ADB over a multi-month period is the more granular and predictive metric for underwriting purposes.

Can a merchant manipulate ADB before applying?

Yes — a common fraud pattern is temporarily inflating a bank account with deposits just before submitting statements, then withdrawing the funds after the advance is funded. Underwriters should look for unusual deposit patterns in the most recent month, especially large round-number deposits inconsistent with prior months.

NSF Ability to repay Merchant cash advance (MCA)

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