Lender Training Academy

**The 4-Tier Small Business Lending System** Unlike traditional rigid cutoffs, our algorithm uses flexible tiers designed for small business realities: • **40-49% (Bridge Financing)**: $5K-$25K microloans, CDFIs, improvement track • **50-64% (Standard)**: $10K-$75K standard small business loans • **65-79% (Moderate)**: $50K-$200K moderate loans • **80%+ (Full Range)**: Up to $250K based on revenue **Key Principle**: No one is declined without a path forward. Everyone gets actionable roadmap. **Why 50% is the Lender Visibility Gate:** - Below 50%: Supplier focuses on improvement with guided roadmap - At 50%+: Profile becomes visible to lending network - This ensures quality pipeline while giving suppliers clear goals

**What the Algorithm Actually Evaluates (100 points total)** 1. **Financial Health (25 pts)** - Revenue growth trends - Profitability margins - Cash flow stability (6+ months positive = strong) - Financial statements completeness 2. **Credit Profile (20 pts)** - Business credit score (evaluated, not disqualifying) - Personal credit score (context matters) - Bankruptcy recovery (2+ years + good recent history = bonus points) - Collections explained and resolved = bonus 3. **Documents (15 pts)** - EIN, tax returns, bank statements (required) - Licenses, insurance (demonstrates legitimacy) 4. **Character (20 pts)** - Owner's industry experience (10+ years = max points) - Client testimonials and reputation - Management team strength - Transparency and communication 5. **Collateral & Proposal (20 pts)** - Asset values and quality - Detailed use of funds plan - ROI projections with supporting data - Risk mitigation strategy **Critical**: All factors are evaluated, but low scores in one area can be compensated by strength in others.

**How Maximum Loan Amounts Are Determined** The algorithm calculates the LOWEST of three caps: **1. Revenue-Based Cap** - Target: 30-40% of annual revenue - Formula: Annual Revenue × 0.35 - Rationale: Ensures repayment capacity **2. Years-in-Business Cap** - <1 year: $25K max - 1-2 years: $75K max - 2-5 years: $150K max - 5+ years: $250K max **3. Readiness-Based Cap** - 40-49%: $25K max (bridge) - 50-64%: $75K max - 65-79%: $200K max - 80%+: $250K max **Example**: - Business: 3 years old, $200K revenue, 58% LARA score - Revenue cap: $70K - Years cap: $150K - Readiness cap: $75K - **Final: $70K** (limited by revenue) This is displayed to the supplier with clear explanation of the limiting factor.

**When Business Fundamentals Can Override Paperwork** Sometimes a business with lower readiness scores deserves financing due to operational strength: **Operational Grit Indicators:** 1. **Proven Revenue**: Consistent or growing revenue over 12+ months 2. **Customer Stability**: Repeat customers, contracts, stable client base 3. **Years Operating**: 3+ years with continuous operations 4. **Recovery Pattern**: Clear recovery from past challenges (bankruptcy, late payments) 5. **Market Position**: Strong competitive position despite documentation gaps **How to Apply:** - If LARA is 45-49% BUT operational grit is strong → Consider bridge financing - If LARA is 50-55% BUT 5+ years + steady revenue → Consider higher tier - Document your rationale: "Despite 52% LARA, 7 years operations + $500K stable revenue justifies $100K loan" **Key**: Always document WHY operational factors justify the decision. Make it defensible.

**How to Use This Algorithm in Your Workflow** **Step 1: Review LARA Score + Breakdown** - See overall score and category scores - Identify strengths and weaknesses **Step 2: Check Visibility Gate** - <50%: Not in your pipeline yet (they're improving) - 50%+: In your pipeline, assess tier **Step 3: Calculate Maximum Loan** - System shows you three caps automatically - Note the limiting factor **Step 4: Consider Operational Grit** - Review years in business, revenue trends - Check if fundamentals justify adjustment **Step 5: Make Your Decision** - Approve: Offer amount within calculated max - Conditional: Request specific documents/improvements - Decline with Path: Provide improvement roadmap **Always Provide:** - Clear reasoning for your decision - If conditional/declined: Specific next steps - Timeline for re-evaluation - Alternative options (CDFIs, microloans) **Documentation Template:** "Business X scores 56% LARA (Standard tier). Revenue cap: $85K. Recommending $75K term loan based on 4 years operations + positive cash flow. Requires: updated financials + business plan."