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Definition
A haircut is the percentage a lender deducts from an asset’s market value to set the amount it will lend. A 20% haircut on £100,000 of stock supports £80,000 of borrowing — the mirror of the advance rate.
In plain terms
The riskier or less liquid the asset, the bigger the haircut. Specialist stock gets a deeper cut than gilt-edged receivables.
Why it matters for your company
The haircut, not the headline valuation, drives how much cash secured lending actually releases. Improving asset quality (spread of debtors, saleable stock) shrinks it. See asset-based lending.
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