Business Loan Broker shares how they give out credit
Business Loan Broker shares how they give out credit
03-26-2025, 09:33 AM
- No we're not holding loans on our balance sheet, nor do we actually fund any of the deals ourselves. We broker the deals to other lenders.
- We don't track or calculate FCCr in 95% of our applications, but i can tell you in general it's gotten way worse since 2019. Most small businesses cash flow's have dropped by 10%-20% with some exceptions like construction, which we've seen a huge increase in cash flow but also an increase in defaults since it's one of the hardest industries to properly asses risk on a project by project basis...so if a small time contractor takes on a job he cant afford to f*ck up...and he f*cks up..then there goes the company, and all of the debt that company had is now being chased down by legal/collections departments
- It ranges, similar to what other_than_usual responded. I'll see large established companies under 2.5, and smaller newer businesses who are taking on a ton of debt above a 7. Really just depends on what type of marketing we're doing...if its super simple, colorful online ads, your going to get alot of newer/uninformed business owners. If its referrals made to us through affiliate partners (accountants, lawyers, etc) they usually have better total debt/EBITDA ratios. Given that we do both types of marketing...we see it all. Good rule of thumb is you want to be under a 3 if you're looking for long term/prime rate debt. Although, some industries can get away with a higher (4-5)
- As a company, we try to avoid working with other financial services companies, and anything with legal/moral ambiguity (adult film industry, cannabis, firearms, etc). because the lenders we work with almost always have those industries blacklisted.
- Yes! Manufacturing & Healthcare. Based on the questions your asking, im assuming your already familiar with the reasons why...but it boils down to some really simple factors after you get passed all the d*ck swinging financial analysis that underwriters love to do. Those reasons are: the default/failure rate across all companies in those industries far below average, the revenues & ebitda are higher than average and the ability to collect payment in the event of a default is also very easy compared to most industries.
Great questions! So many people, especially educated ones, think that underwriting is some mythical combination of formulas that lenders keep hidden from the everyday business owner. Lenders might be looking at things like EBITDA, FCCr, P&L's, balance sheets, income statements, or any other 892672356 documents they might ask you for...but putting it very simply, they are just trying to see how likely you are to pay them back, and how much you can afford. Depending on the type of program you apply for, they are either using EBITDA (tax returns) or bank statements (income) to determine affordability. Likelihood of paying back is most heavily determined by industry, time in business, and personal or business credit score/profile. The industry tries so hard to be sophisticated, but from what i've seen...it really isnt. Of course, i can only speak to small/medium sized businesses. If you're asking how large public corporations or extremely well funded companies (i.e bought for 9 figs by PE firms) get their debt, i likely know as much as you. They dont deal with brokers because they have entire finance teams within their org to apply/analyze/negotiate debt offerings from lenders
Source: https://www.reddit.com/r/smallbusiness/c...roker_ama/
- No we're not holding loans on our balance sheet, nor do we actually fund any of the deals ourselves. We broker the deals to other lenders.
- We don't track or calculate FCCr in 95% of our applications, but i can tell you in general it's gotten way worse since 2019. Most small businesses cash flow's have dropped by 10%-20% with some exceptions like construction, which we've seen a huge increase in cash flow but also an increase in defaults since it's one of the hardest industries to properly asses risk on a project by project basis...so if a small time contractor takes on a job he cant afford to f*ck up...and he f*cks up..then there goes the company, and all of the debt that company had is now being chased down by legal/collections departments
- It ranges, similar to what other_than_usual responded. I'll see large established companies under 2.5, and smaller newer businesses who are taking on a ton of debt above a 7. Really just depends on what type of marketing we're doing...if its super simple, colorful online ads, your going to get alot of newer/uninformed business owners. If its referrals made to us through affiliate partners (accountants, lawyers, etc) they usually have better total debt/EBITDA ratios. Given that we do both types of marketing...we see it all. Good rule of thumb is you want to be under a 3 if you're looking for long term/prime rate debt. Although, some industries can get away with a higher (4-5)
- As a company, we try to avoid working with other financial services companies, and anything with legal/moral ambiguity (adult film industry, cannabis, firearms, etc). because the lenders we work with almost always have those industries blacklisted.
- Yes! Manufacturing & Healthcare. Based on the questions your asking, im assuming your already familiar with the reasons why...but it boils down to some really simple factors after you get passed all the d*ck swinging financial analysis that underwriters love to do. Those reasons are: the default/failure rate across all companies in those industries far below average, the revenues & ebitda are higher than average and the ability to collect payment in the event of a default is also very easy compared to most industries.
Great questions! So many people, especially educated ones, think that underwriting is some mythical combination of formulas that lenders keep hidden from the everyday business owner. Lenders might be looking at things like EBITDA, FCCr, P&L's, balance sheets, income statements, or any other 892672356 documents they might ask you for...but putting it very simply, they are just trying to see how likely you are to pay them back, and how much you can afford. Depending on the type of program you apply for, they are either using EBITDA (tax returns) or bank statements (income) to determine affordability. Likelihood of paying back is most heavily determined by industry, time in business, and personal or business credit score/profile. The industry tries so hard to be sophisticated, but from what i've seen...it really isnt. Of course, i can only speak to small/medium sized businesses. If you're asking how large public corporations or extremely well funded companies (i.e bought for 9 figs by PE firms) get their debt, i likely know as much as you. They dont deal with brokers because they have entire finance teams within their org to apply/analyze/negotiate debt offerings from lenders
Source: https://www.reddit.com/r/smallbusiness/c...roker_ama/