Underwriting Guide by Product

An MCA is a purchase of future receivables, not a loan — so there is no APR, no fixed term, and it is not reported to credit bureaus. The total payback is fixed at a factor rate (e.g., 1.30 = you repay $1.30 for every $1.00 advanced). Repayment is a daily or weekly ACH debit based on a fixed percent of deposits or a fixed flat amount.

• Stacking risk: MCAs are frequently stacked. Most lenders cap at 2nd or 3rd position. Declaring all existing advances upfront is critical — hiding positions is a decline or fraud trigger.
• Renewals: Once ~70% repaid, many MCA lenders will offer a renewal. Renewals typically carry the same or higher factor rate.
• Industries: Restaurants, retail, medical, and seasonal businesses are common. High-churn industries (trucking, construction, cannabis) face tighter terms or declines at many lenders.

Term loans are the most familiar product. A fixed lump sum is disbursed and repaid on a set schedule. Alt lenders typically use daily or weekly ACH; banks use monthly payments. Compared to MCAs, term loans usually have lower cost, longer terms, and stricter qualification.

• Bank statements: Most alt lenders require 3–6 months. Banks require up to 24 months plus tax returns.
• Collateral: Most alt term loans are unsecured (UCC blanket lien only). Bank term loans may require hard collateral.
• Stacking: Many term lenders will accept a 2nd or 3rd position but factor rate and terms worsen. Transparent disclosure matters here.

A line of credit provides access to a credit limit the borrower can draw from as needed. Unlike a term loan, there's no fixed repayment on the full amount — only on what's actually drawn. This makes it ideal for managing cash flow gaps rather than one-time purchases.

• Revolving vs. traditional: A revolving LOC lets the borrower draw, repay, and draw again within the limit. A traditional LOC requires requalification after paying down the balance.
• Draw fees: Many alt LOCs charge a flat fee per draw (e.g., 1–3% of drawn amount) rather than ongoing interest.
• Higher credit bar: LOCs typically require stronger credit than term loans from the same lender — lenders are committing ongoing availability, not just one advance.

SBA loans are partially guaranteed by the Small Business Administration, allowing lenders to offer longer terms (up to 25 years for real estate; 10 years for working capital) and lower interest rates than any other small business product. The tradeoff is documentation intensity and slow approval.

• Programs: SBA 7(a) is the most common. SBA 504 is for fixed assets (real estate, equipment). SBA Express is faster and simpler but capped at $500k.
• Clean credit required: No recent bankruptcies, no delinquent federal debt, no open tax liens. These are automatic declines.
• Personal guarantee: Any owner with 20%+ ownership must personally guarantee.
• Documentation: 2 years business tax returns, 2 years personal tax returns, YTD P&L, business plan (in some cases), business license, and more.

Equipment financing uses the purchased equipment as collateral. Because the lender can repossess and resell the asset, qualification is easier than unsecured products — even borrowers with credit challenges can qualify if the equipment has strong resale value.

• Loan vs. lease: A loan gives the borrower ownership from day one. A lease (FMV or $1 buyout) may offer lower payments with an option to purchase at end of term.
• New vs. used: Most lenders prefer new or late-model equipment. Older or specialized equipment (>10 years) may require more equity or a higher rate.
• Soft costs: Installation, shipping, and training may be included in the financed amount — or may require a down payment. Confirm with the lender.
• Section 179: Borrowers should consult a CPA — equipment financed through the loan/lease may be immediately deductible under Section 179.

Factoring is not a loan — it's the sale of outstanding invoices at a discount. The factor advances most of the invoice value immediately, then collects from the borrower's customer and remits the reserve (minus fees) when payment is received. This makes it ideal for B2B businesses with slow-paying customers.

• Notification vs. non-notification: In traditional factoring, the factor notifies the borrower's customers to pay the factor directly. Non-notification (or "confidential") factoring keeps the factor hidden — the borrower collects and remits.
• Spot factoring: Some lenders let you factor individual invoices on demand rather than signing a long-term agreement. Higher per-invoice cost but maximum flexibility.
• Ideal use case: Construction firms, staffing agencies, trucking companies, and healthcare providers with net-30/60/90 payment terms.

CRE financing is secured by commercial property — office, retail, industrial, multifamily, or mixed-use. It's a distinct underwriting process from any other small business product, with property appraisal and DSCR (Debt Service Coverage Ratio) as primary underwriting factors.

• DSCR: Most lenders require DSCR ≥ 1.25x — the property's net operating income must cover debt service at 125% or better. Properties with high vacancies or low NOI will struggle.
• Bridge loans: Short-term (6–24 month) CRE financing for value-add or transitional properties. Higher rate, faster close. Designed to be refinanced into permanent financing.
• Owner-occupied vs. investment: Owner-occupied CRE (business occupies 51%+) typically qualifies for SBA 504. Pure investment CRE goes through conventional commercial routes.
• Recourse vs. non-recourse: Many CMBS and life company loans are non-recourse — limited to the property. Bank and bridge loans typically require a personal guarantee.