The 7(a) Lender analyzes each Standard 7(a) application in a commercially reasonable, prudent manner, treating the business's cash flow as the primary source of repayment and declining where cash flow does not give reasonable assurance of timely repayment, whatever the collateral. Under PLP the Lender makes and documents the credit decision itself, subject to SBA review at purchase or oversight. Its credit memorandum documents the business, its history and management (and any management agreement, reviewed for passive status), three years of historical financials plus an interim (or detailed two-year projections with assumptions for start-ups or where history falls short), personal credit reports of owners and guarantors (copies within 90 days for non-delegated), EBITDA with justified adjustments, global cash flow including affiliates, debt service coverage of at least 1.15 on the business and 1.0 globally (projections without rental income from the project property, justified against industry trends), a pro forma balance sheet and ratio benchmarks, 12 months' working capital adequacy, collateral adequacy under Appendix 19, insurance, justification of any refinancing with late payments explained, and its rationale: credit elsewhere, working capital above half of proceeds, competition, seller and standby debt, 90-day delinquencies, trade disputes, citations, the business valuation in a change of ownership, liens, judgments, bankruptcies and litigation, franchisor failure data and other relevant facts.
The graph holds this control, the 0 it maps to, and the evidence behind each claim, over MCP and REST.