The two questions every lender answers
Behind every approval are two calculations. The first is exposure: how much can this business be trusted with, given its revenue, history and what it already owes. The second is affordability: what payment can it carry every week or month without missing a debit. The smaller of the two answers is your amount.
Fast products such as merchant cash advances and revenue-based financing lean on the first question and answer it with a revenue multiple. Term loans, lines of credit and SBA loans lean on the second and answer it with a debt-service coverage test. Equipment financing and invoice factoring sidestep both to a degree, because the asset or the invoice is the primary source of repayment.
Understanding which question your product cares about tells you which number on your file to strengthen. A business with big deposits but thin margins will size well for an advance and badly for a term loan. A business with modest revenue but strong profit and no debt will do the opposite.
Revenue multiples: how fast products set the ceiling
Merchant cash advance and working-capital providers underwrite from three to six months of bank statements. The usual ceiling is 50 to 150 percent of average monthly deposits, with 80 to 120 percent the most common outcome for a clean file. A business depositing $40,000 a month will typically see offers between $30,000 and $50,000, not $150,000.
The multiple moves with quality. Consistent deposits, low negative-balance days, a long operating history and no other advances push it toward the top of the range. Volatile deposits, several NSFs, a recent advance or a high-risk industry pull it down. Card-heavy businesses often get a slightly higher multiple because the provider can collect directly from processing.
Revenue-based financing for online and subscription businesses works similarly but looks at monthly recurring revenue and growth. Typical advances run 10 to 30 percent of trailing twelve-month revenue, repaid as a fixed share of monthly sales.
| Product | Typical sizing rule | Example at $40,000/month revenue | What raises the number |
|---|---|---|---|
| Merchant cash advance | 50–150% of one month of deposits | $20,000 – $60,000 | Card volume, deposit consistency, no other advances |
| Working capital loan | 60–120% of monthly deposits | $24,000 – $48,000 | Time in business, clean statements |
| Revenue-based financing | 10–30% of trailing 12-month revenue | $48,000 – $144,000 | Recurring revenue, growth, margins |
| Business line of credit | 10–20% of annual revenue | $48,000 – $96,000 | Credit score, profitability, bank relationship |
| Term loan | Payment ≤ 80% of free cash flow, 1–5 years | Depends on margin; often $50,000 – $150,000 | Profit, coverage ratio, collateral |
| SBA 7(a) | Cash-flow coverage ≥ 1.15–1.25× over 10 years | Often $100,000 – $500,000+ | Two years of returns, collateral, equity injection |
| Equipment financing | Up to 100% of equipment cost | Set by the quote, not revenue | Asset type, down payment, credit |
| Invoice factoring | 80–95% of eligible invoices | Set by receivables, not revenue | Customer quality, invoice age |
Cash-flow coverage: how term lenders set the payment
Term lenders and SBA lenders start from what is left after the business pays its bills. They compute monthly net operating cash flow, subtract existing loan and advance payments, and require the new payment to be covered with a margin. The standard is a debt-service coverage ratio of 1.25, meaning $1.25 of available cash for every $1.00 of total debt payments. Some online term lenders accept 1.10 to 1.15; banks and SBA lenders want 1.25 or better.
Work it backwards to find the amount. Suppose a business nets $9,000 a month after operating expenses and already pays $2,000 a month on an equipment loan. Available for new debt at 1.25 coverage is ($9,000 ÷ 1.25) − $2,000 = $5,200 a month. At 18 percent APR over 36 months, a $5,200 payment supports a loan of roughly $144,000. At 30 percent APR over 24 months it supports about $93,000. Same business, same cash flow, very different amounts, because the rate and term set how much principal a payment can carry.
This is why improving your rate matters for size as well as cost, and why a longer term raises the amount you can qualify for even though it increases total interest. It is also why paying down or consolidating an expensive advance before applying can raise your term-loan capacity by more than the amount you paid off.
| APR | 12 months | 24 months | 36 months | 60 months |
|---|---|---|---|---|
| 10% | $59,000 | $113,000 | $161,000 | $245,000 |
| 18% | $57,000 | $104,000 | $144,000 | $205,000 |
| 30% | $53,000 | $93,000 | $122,000 | $161,000 |
| 45% | $50,000 | $83,000 | $104,000 | $128,000 |
Amounts are rounded. The estimator further down runs the same arithmetic in reverse: enter an amount to see the payment it implies at published market rates.
Existing positions and stacking
Every open obligation reduces capacity before the new request is considered. Underwriters find them on the bank statements as recurring debits and in UCC filings, so undisclosed advances do not stay hidden. A business with two advances remitting a combined $600 a day, about $12,600 a month, has already committed that cash. A provider who would otherwise size at $50,000 may offer $15,000, or nothing.
Stacking, taking a second or third advance on top of the first, is the fastest way to lose borrowing capacity entirely. Many first-position contracts prohibit it, and second-position providers price the added risk with factor rates at the top of the range. If you are carrying more than one advance, the highest-value move is usually a consolidation or a term loan that clears them, provided your file qualifies. Lenders often exclude the payment being refinanced from the coverage test, which can make the numbers work.
Personal obligations matter for SBA and bank products, which look at the owner’s personal debt-to-income alongside the business. They matter less for revenue-based products, which rarely look beyond the business bank account.
Credit and time in business
Credit score rarely sets the amount directly, but it decides which products are open to you, and the products set the range. Below about 550, revenue-based products are usually the only option and the multiple sits at the low end. From 600 to 640, online term loans and lines of credit open up. From 650 to 680, SBA and bank products become realistic, and the ceiling jumps from a revenue multiple to a cash-flow calculation over five to ten years.
Time in business works the same way. Six months of statements unlocks advances and working capital. One to two years unlocks term loans and lines. Two full years of tax returns, ideally profitable, unlocks SBA lending. A business at 18 months with strong deposits may find its best amount is a line of credit now and an SBA loan next year.
Industry adjusts everything. Restaurants, trucking, construction and retail sit in higher-risk categories for most providers and see lower multiples and higher pricing. Medical, dental, professional services and established manufacturing sit lower on the risk scale and size more generously.
A worked example
A landscaping company in Denver has been operating for three years. Average deposits are $65,000 a month with a spring peak of $110,000 and a January low of $20,000. Net cash flow after expenses averages $11,000 a month. The owner has a 660 credit score and one equipment loan at $1,800 a month. There are no advances. The owner wants $150,000 for two trucks and pre-season hiring.
A merchant cash advance provider would size at 80 to 120 percent of average deposits: $52,000 to $78,000, at a factor around 1.25 to 1.35, with the seasonality counting against the multiple. A term lender at 1.25 coverage has ($11,000 ÷ 1.25) − $1,800 = $7,000 a month available; at 20 percent APR over 36 months that supports about $188,000, so $150,000 is realistic, although the lender may cap at a revenue-based ceiling near $130,000 without collateral. Equipment financing would fund the trucks separately at up to 100 percent of the quote, say $90,000 over 60 months at around $1,900 a month, leaving a smaller working-capital request of $60,000 that almost any product can cover.
The best structure here is not one $150,000 loan. It is $90,000 of equipment financing secured by the trucks plus a $60,000 line of credit or term loan for hiring, which together cost less, fund faster and keep the coverage ratio healthy. Sizing the request to the file is what makes that visible.