SBA lenders: I'd appreciate your perspective on a live underwriting question.

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by a professional from Northern Arizona University
in Tucson, AZ, USA

1h ago

SBA lenders: I'd appreciate your perspective on a live underwriting question.

SBA lenders: I'd appreciate your perspective on a live underwriting question. Hypothetical: LOI/term sheet at a $1M purchase price. Updated financials came in showing 35% lower revenue but higher gross profit and EBITDA because the company doubled inventory purchases to qualify for larger supplier discounts, improving margins. How would your credit committee view this? Would you see the improved profitability as sustainable, or would you adjust earnings because the margin improvement was driven by unusually large inventory purchases?

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reply by a lender 7m ago
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

Jon, great question. We are a Commercial Loan Brokerage and work with over 500 lenders, so I can respond knowing how most lenders would respond. I am also a credit guy by background, so I can respond based on my opinion on credit. Any decline in revenue is a big red flag for lenders. Something minor over a short period of time is not a big deal, but 35% is not minor. If there is a good reason for the decline in revenues, then that might help get through it. I would definitely suggest presenting that reason at the same time you present the updated financial statements to lenders. Although supplier discounts are great and the improved profits related to that are great, I think lenders are going to see that as more of a one-time improvement and not something that will necessarily continue going forward. Especially if you are doing a leveraged acquisition, lenders will question whether you would be able to take advantage of the same discounts in the future or would have the cash on hand to do so. Also, they will want to know if those discounts were one time or are always available. I am not sure what you are looking at with the financials. Is it YTD over the previous YTD? Is it a TTM analysis? Most lenders focus more on the TTM then the YTD on a standalone basis, so if the TTM is still good, you likely would be fine. However, if the TTM is down and the YTD is way off of the year-to-date from last year, that is going to be a big concern for lenders. I hope this helps. If you would like to discuss in more detail you can reach me here or directly at redacted Good luck.