Ask an Underwriter: What Does a “Healthy Business” Look Like?

Female underwriter speaking to small business owner on the phone about funding.

When you apply for small business funding, you have to answer a lot of questions. Some are easy to answer—how long have you been in business? What is your average monthly revenue? Other inquiries—how much do you spend on inventory per month?—are more challenging and may require some extra effort to answer.

How you answer these questions will impact the type of funding you receive, as well as the terms of your working capital loan. But when it comes to applying for small business funding, it’s not all about you—we know you’ve got questions for us, too.

Our new blog series, “Ask an Underwriter”, will answer your most common questions about small business funding and provide practical advice and expertise from the Greenbox Capital® underwriting team—and sometimes our CEO, Jordan Fein.

What is an underwriter? When it comes to small business lending, an underwriter is any party that assesses and evaluates risk to determine whether your application for funding will be approved or rejected.

What does a healthy business look like?

In the first installment of our new series, we’ll take a closer look at the characteristics of what we consider to be a healthy business.

Different lending institutions have different definitions of what a “healthy business” looks like. For traditional lenders like banks, your credit score will be one of the strongest indicators of the health of your business. At Greenbox Capital, we know that your credit score doesn’t always tell the whole story, so we use different criteria to identify “healthy” businesses.

Here are some of the key characteristics of what we consider to be a healthy business:

1. You have an average bank balance that is greater than or equal to 10% of your annual revenue.

A strong, consistent average bank balance ensures that your business has the resources it needs to cover daily operating expenses, weather unexpected setbacks, or provide a cash reserve to cover your financial obligations during slower seasons.

If you’ve got cash on hand greater than or equal to 10% of your annual revenue—or enough to cover 3-6 months of your recurring operating expenses—it’s time to consider investing in your business. When you’re in a tough spot and your cash reserves are depleted, you’re less likely to be approved for the funding you need. Steady profits and sufficient cash-on-hand indicate stability, which can make it much easier for you to acquire the working capital funding you need to grow.

2. You’ve been in business for more than 3 years.

Building and maintaining a successful small business takes dedication and diligence—two qualities that are essential to operating a healthy business. If you’ve been in business for at least three years, small business funding can provide the influx of cash you need to keep growing.

3. You can prove your ability to manage all business finances.

This includes things like paying your creditors on time with no returned payments and without relying on your personal finances or overdraft protection. Alternative lenders like Greenbox Capital will verify your ability to manage your finances by reviewing your average bank balance, your history of insufficient funds (NSF) or overdrawn withdrawals, and how regularly you rely on transfers from personal accounts to cover your expenses.

4. You have great online reviews.

There’s more to being a “healthy business” than simply maintaining your finances—healthy businesses also have a top-notch online reputation.

Online reviews help alternative lenders evaluate your customer satisfaction, as well as your commitment to providing high-quality products or services. A strong online reputation tells us that you care about your customers and how your business is perceived online.

If you have some bad reviews, don’t worry—a few poor reviews won’t significantly impact your likelihood of receiving funding, especially if you respond to bad reviews quickly and professionally. However, a history of poor reviews left unanswered can indicate that a business owner doesn’t value feedback from their customers or can’t be bothered to address their concerns. This can drastically reduce your chances of approval.

Get our tips for managing your online reputation.

5. Few cash withdrawals.

A healthy business will have established relationships with their creditors and customers, as well as detailed records of payments—including tracking all expenses, payments, and cash withdrawals.

At Greenbox Capital, we understand that petty cash is an important part of operating any small business, so a small number of cash withdrawals isn’t overly concerning. However, cash businesses are inherently riskier than businesses that rely on other forms of payment, such as debit or credit card sales, and they may require additional review before your funding is approved.

6. Your revenue is consistent month-over-month.

Consistent month-over-month revenue indicates that your income is stable, and a stable business is a healthy business. If you operate a seasonal business and have distinct high and low seasons, we’ll evaluate your stability by comparing seasons year-over-year instead of comparing your revenue month-over-month.

7. A history of responsible lending.

All businesses occasionally need an infusion of working capital. When used responsibly, alternative lending products like merchant cash advances can provide amazing benefits to small business owners. A history of taking out and repaying a loan won’t hurt your application—in fact, a track record of responsible lending can actually improve your chances of approval.

What does a history of responsible lending look like? Here are some factors we look for:

  • Seeking the appropriate amount of funding using the right funding product.
  • Not stacking loans (that means using a loan to pay off another loan).
  • Not overextending yourself by taking out larger loans than you can reasonably manage

At Greenbox Capital, we are proud to provide responsible funding that won’t over-leverage your business. Our Funding Advisors will work closely with you to determine what type of funding will work best for you without compromising your cash flow. Successfully repaying your Greenbox Capital funding is one of the strongest indicators of a healthy business, and will put you in a much stronger position to be approved the next time you need an infusion of working capital.

Wrapping Up

Traditional lenders like banks judge your business on, well, traditional factors like your financial history and credit score. As an alternative lender, we know that the strength of your business depends on more than just your credit history, so we look at the overall health of your business instead.

What exactly does a healthy business look like? Here are 7 factors we consider:

  1. An average bank balance that is greater than or equal to 10% of your annual revenue.
  2. You’ve been in operation for more than three years.
  3. You can prove your ability to manage your business finances.
  4. Great reviews and a strong online reputation.
  5. Few cash withdrawals.
  6. Consistent month-over-month or year-over-year revenue.
  7. A history of responsible lending.

We consider all merchants of good standing, so if your business doesn’t meet all of these criteria, you may still be eligible for funding.

Discover our funding options
Contributor and expert in finance and loans, business and economics