What an underwriter is actually deciding about you

An underwriter is not scoring your business. They are answering four questions, and everything they ask you for is evidence toward one of them.

Question 1: how does this business actually make money

Before capacity, before collateral, someone has to understand the model. Who pays you, how often, in what form, and what has to happen before you get paid. A restaurant collecting at the point of sale, a contractor billing on progress with retainage held back, a staffing agency paying wages weekly and collecting in 45 days, a distributor buying inventory 60 days before it sells — these have completely different cash shapes, and the product that fits one is wrong for another.

This is why the industry code on your application matters more than it looks. It routes your file to a set of assumptions.

Question 2: can it carry the payment on a normal bad month

Not on last month. On a normal bad month.

At the bank tier this is formal: debt service coverage, calculated on cash flow after adjustments, against total debt service including the new facility and everything on your debt schedule. Then it is stressed — revenue down, margin down, rate up — to see where coverage breaks.

At the statement-based end it is blunter and it is about the same thing. The daily or weekly remittance is compared with average daily deposits and with average daily balance. A remittance that consumes a large share of a normal day's receipts fails, no matter how good the year was, because the test is whether the debit clears on the slow Tuesday, not whether the annual figures support it.

Now stress it at a 38% contribution margin. Revenue down 5% takes coverage to 1.28. Down 10%, 1.04. Down 15%, 0.81.

The underwriter is not asking whether 1.52 is good. They are asking how far revenue can fall before the file stops working, and here the answer is about 11%. That distance to break-even, rather than the coverage ratio itself, is what decides whether the deal is approved at the amount requested, approved smaller, or declined.

Work it out on your own figures before you apply, and bring it. A borrower who can state their own break-even revenue is answering the question the credit memo has to answer anyway.

Two implications worth internalising. First, seasonality is a capacity question, not a footnote: a fixed daily debit set against summer deposits will break in February, and an underwriter who understands your industry is already modelling that. Second, every existing position reduces your capacity for the next one, which is why the debt schedule is not a formality.

Question 3: will they pay, and what happens if they do not

Capacity is arithmetic. This is character and recovery, and it is where the file gets personal.

Question 4: does it fit the box, and at what price

The first three questions are analysis. This one is policy, and it overrides analysis.

Every funder has a credit box — minimum time in business, minimum revenue, states served, restricted industries, credit floor, maximum existing positions, maximum exposure to one borrower, and portfolio limits set by whoever funds them. A file can pass questions one to three and still be declined because the funder is over-concentrated in your sector this quarter, or because a bank partner's policy excludes it, or because their own capital provider changed the rules last month.

This is the least discussed and most useful fact about underwriting: a decline is frequently a statement about the funder, not about you. The same file, submitted to a funder whose box it fits, gets a different answer. That is not a loophole. It is how a market with different funding costs and different risk appetites works.

Where the file passes but sits near the edge, the answer is not decline or approve — it is approve, structured differently: less money, a shorter term, weekly instead of daily, a higher price, more collateral, an additional guarantor, a holdback, a reserve. Most of what feels like a negotiation with a salesperson afterwards is really you discovering which lever the underwriter pulled.

The incentive worth knowing

Underwriters are not measured on how many deals they approve or how convenient they were. They are measured on what defaults. A salesperson is paid when you fund. Those two people are inside the same organisation and they want different things from your file. Understanding that explains almost every strange conversation you will have during the process — the enthusiasm at the front, the questions in the middle, and the price at the end.

What this means for how you present a file

Answer the four questions before they are asked. Explain the business model in three sentences at the top. Show the payment being carried in a slow month, not an average one. Disclose the positions and the problems with the documents that put them in context. Ask which funders your file actually fits before it is submitted anywhere, because the box test happens whether or not anyone tells you it did.