# Drawing Power > Drawing Power means the borrower's ability to periodically withdraw funds, not exceeding the value of the [security], less the [margin]. **Term:** Drawing Power **Last updated:** 2026-07-29 ## Definition ## What Drawing Power Means in a Contract Drawing Power is a contractual limit placed on how much a borrower can withdraw from a credit facility, most commonly a cash credit or overdraft arrangement secured against movable assets like inventory, receivables, or work in progress. Rather than being a fixed sum stated once at signing, it is recalculated periodically based on the current value of the security pledged to the lender. This makes it a dynamic ceiling rather than a static loan amount. In practice, the clause exists to protect the lender from over-extending credit relative to the value of collateral actually available at any given point. If the value of the secured assets falls, the amount the borrower may draw falls with it, even if the sanctioned credit limit on paper remains higher. The contract typically ties this calculation to a formula involving the value of the security and a deduction called the margin. ## How Drawing Power Is Defined or Measured The standard formula is straightforward: Drawing Power equals the value of the security, less the margin the lender applies as a buffer against price fluctuations, spoilage, obsolescence, or valuation uncertainty. The margin is usually expressed as a percentage and is set out in the facility agreement or a related [Security Agreement](https://www.genieai.co/en-us/template-type/security-agreement), often varying depending on the type of asset pledged. Contracts typically require the borrower to submit periodic statements, such as monthly stock or receivables reports, so the lender can recompute the Drawing Power figure. These statements form the evidentiary basis for the calculation, and the agreement will usually specify submission deadlines, required formats, and consequences for late or inaccurate reporting. - Stock statements showing quantity and value of inventory - Receivables ageing reports excluding overdue or disputed amounts - Valuation methodology, such as cost or market price, whichever is lower - Exclusions for obsolete, damaged, or slow-moving goods ## Where Drawing Power Appears in Agreements Drawing Power clauses are found predominantly in working capital facility agreements, cash credit arrangements, and overdraft facilities used across sectors that carry significant inventory or receivables, including manufacturing, wholesale, retail, and construction. Lenders in the [Finance](https://www.genieai.co/industry/finance) sector routinely embed these provisions into standard facility documentation to ensure ongoing monitoring of collateral coverage. The concept also surfaces in ancillary documents such as hypothecation agreements, inventory pledge instruments, and periodic compliance certificates that accompany the main facility contract. Where a business operates across multiple sites or holds diverse asset classes, the underlying Security Agreement may set out separate Drawing Power calculations for each category of collateral, consolidated into a single reporting mechanism. ## Why the Exact Wording Matters Precision in defining Drawing Power protects both parties from disputes over how much credit is actually available. Ambiguity in the valuation method, the timing of recalculation, or which assets qualify as eligible security can lead to a borrower believing more funds are available than the lender is willing to release, creating friction and potential default triggers. The wording also determines what happens when Drawing Power falls below the amount already drawn, a situation sometimes called an excess drawing. Well-drafted clauses specify whether the borrower must immediately repay the shortfall, provide additional security, or has a cure period. Vague language here creates uncertainty about enforcement rights and can affect how a dispute is resolved under the law governing the contract. ## Drafting Considerations When drafting or reviewing a Drawing Power clause, parties should ensure the valuation methodology is objective and verifiable, ideally referencing independent price sources or audited figures rather than the borrower's own estimates. The margin percentage should be clearly stated per asset category, and the frequency of recalculation should match the volatility of the underlying collateral. It is also prudent to address reporting obligations, certification requirements, and the lender's right to conduct inspections or audits of the secured assets. Clear consequences for shortfalls, including notice periods and remedies, reduce the risk of later disputes. Businesses in asset-heavy industries such as construction or manufacturing should pay particular attention to how seasonal fluctuations in inventory are treated within the formula. Finally, cross-references to other transaction documents, such as the facility agreement and any related Security Agreement, should be consistent in terminology and defined terms, avoiding conflicting definitions of value, margin, or eligible security that could otherwise undermine the enforceability of the clause. ## Context ### Relevant circumstances - When a borrower has a revolving facility limited by collateral value - If margin requirements reduce the available drawing power - Where periodic revaluation of security adjusts drawing limits ### Relevant sectors - Finance ## Relevant contract types - [Security Agreement](https://www.genieai.co/en-us/template-type/security-agreement) --- This is the Markdown representation of [https://www.genieai.co/en-us/define/drawing-power](https://www.genieai.co/en-us/define/drawing-power), provided for AI agents and crawlers. The HTML page is canonical. See [/llms.txt](https://www.genieai.co/llms.txt) for the full content map.