Underwriting Multiple
The underwriting multiple is the relationship between a merchant's monthly revenue and the maximum advance amount the funder will provide — typically expressed as 'Xx revenue' (e.g., 1x, 1.5x) — codifying funder appetite for advance size relative to merchant cash flow.
Why This Matters
Underwriting multiples standardize size discipline across funder portfolios. Conservative funders advance 0.8-1.2x monthly revenue (more conservative) on first-position deals. Aggressive funders advance 1.5-2x monthly revenue on prime credit profiles. Multiples adjust for risk: second-position deals typically get 0.5-0.8x multiple, third-position 0.3-0.6x. Industry-specific multiples reflect default rate variance — restaurants might get 0.8x while professional services get 1.5x at the same funder. Multiples are one of the highest-impact underwriting parameters: changing the multiple by 0.1 dramatically affects portfolio mix and risk.
Example
Funder uses 1.2x multiple on first-position, 0.7x on second. Merchant with $80K monthly revenue: first-position max $96K, second-position max $56K. Same merchant requesting $120K could be approved $96K with $24K shortfall, prompting either acceptance of reduced amount or shop to another funder with higher multiple appetite.
Frequently Asked Questions
Frequently Asked Questions
What's a typical first-position underwriting multiple?
1.0-1.5x monthly revenue is standard range. Conservative funders cluster 0.8-1.2x; aggressive funders extend to 1.5-2.0x for prime profiles. Industry-specific multiples adjust based on vertical default rates and risk characteristics.
How do underwriters set multiples?
Empirically based on portfolio default experience. Funders track default rates by multiple band (e.g., 1.0x defaults at 8%, 1.5x at 14%, 2.0x at 22%) and set policy multiples to balance approval rates against portfolio loss tolerance. Multiples adjust as portfolio data accumulates.