Approval Amount
The approval amount is the maximum advance the funder will provide to a specific merchant based on underwriting analysis — typically calibrated as a percentage of monthly revenue (50-150%) and adjusted for risk factors, position count, and merchant request.
Why This Matters
Approval sizing balances funder return objectives against repayment risk. Larger advances generate more revenue per deal but require longer payback periods, increasing default exposure. The standard sizing heuristic: approve 80-120% of monthly revenue for first-position deals, 50-80% for second-position, 30-60% for third-position. Sizing also incorporates trailing-revenue trend (growth supports larger advance), industry baseline (restaurants size differently than B2B services), and merchant-stated use of funds (working capital vs. equipment vs. expansion). Final approval often comes in below merchant request to maintain manageable payback ratios.
Example
Merchant requests $80K. Monthly revenue $50K, first position, healthy bank statements. Underwriter sizes at 120% of monthly revenue = $60K approval. Counter-offer to merchant: '$60K approved at 1.32 factor, 6-month term.' Merchant typically accepts modified terms; underwriting captures realistic risk-adjusted advance.
Frequently Asked Questions
Frequently Asked Questions
How do funders calculate maximum approval amount?
Multiple formulas exist; common approach is 80-120% of average monthly deposits for first-position deals, with downward adjustments for position count, industry risk, NSF frequency, and time-in-business below standard. Final amount caps at funder program limits (often $250K-$500K per deal).
What if the merchant rejects a reduced approval amount?
Many merchants negotiate or accept modified terms. Some shop other funders for larger amounts at potentially worse pricing. Some take partial first-position deal then stack second-position from another funder (often without disclosure, creating compliance risk). Underwriters hold size discipline to maintain portfolio performance.