What Your Banker Wants to See Before Approving an SBA Loan for a Restoration Company

You already know the structural problem, because you live it every week. The carrier pays the Actual Cash Value portion of a claim in 30 to 60 days, releases the recoverable depreciation holdback 60 to 120 days after the certificate of completion, and pays approved supplements whenever it gets around to it. Meanwhile your crews get paid every Friday, at a loaded labor rate that carries a 30 to 55 percent burden on top of the base wage. Insurance restoration AR runs 60 to 90 days; the median company carries AR worth roughly 16.5 percent of revenue at around a 60-day DSO. That gap is not a sign you are doing anything wrong. It is the business model.

The trouble is that a banker who has never underwritten a restoration company sees that same gap and reaches for the word "risk." Slow receivables, lumpy revenue, one TPA program at 50 percent of the book — to a generalist lender that reads like a company that cannot predict its own cash. Your job in a loan application is to translate the structural cash gap into a creditworthy story and back it with documents that tie out.

This guide is for the $1M–$5M restoration owner applying for an SBA 7(a) loan, a line of credit, or equipment financing. It covers how a banker actually underwrites you, the exact documents to assemble, the five metrics that decide the file, what kills an application, and how to present a package that earns a yes instead of a "let me take it to committee." If your books are not ready for this conversation, fixing that is the highest-return work you can do before you apply.

How a Banker Underwrites a Restoration Company

A banker is a cash-flow lender first. The core question behind every SBA file is simple: after this company pays all its existing obligations and the new loan, is there still cash left over, reliably, month after month? Everything in the package exists to answer that one question.

For a restoration company, three things make a banker nervous before you say a word.

The AR lag. Sixty to ninety days between billing and collection looks, on a generic credit model, like collection trouble. You have to reframe it: this is insurance money, not consumer credit. The payer is a carrier with a balance sheet, not a homeowner who might default. The lag is structural and predictable, and you manage it with a forecast and a line of credit.

Lumpy, storm-driven revenue. A CAT deployment can double a quarter and then the next quarter reverts. A banker normalizes for one-time surges, so a single big year reads as a spike, not a trend. You want to show the baseline business underneath the storms.

Concentration. If one TPA program or one large carrier relationship is 40 percent or more of revenue, the banker sees a single point of failure. Lose that relationship and the company could halve overnight.

The Documents the Banker Will Ask For

The package is where most restoration applications win or lose, and they lose on consistency more than on substance. The single most important property of your documents is that they tie out — to each other and to your tax returns. A balance sheet that does not match the tax return tells a banker your books cannot be trusted, and from that point everything is discounted.

Here is the standard SBA 7(a) document set for a restoration company:

• Three years of P&Ls and balance sheets, on an accrual or modified-accrual basis, not cash-basis. Cash-basis books hide the AR and the WIP that make your revenue real.
• Three years of business tax returns that reconcile to the financials.
• Three years of personal tax returns for every owner with 20 percent or more, because SBA loans require a personal guarantee.
• A current AR aging that reconciles to the balance sheet, broken out by carrier or program where you can, so the banker sees the AR is insurance money.
• A WIP schedule reconciling contract value, earned revenue, and billed-to-date for every open job — this proves your revenue is correctly timed rather than front-loaded billing. See the WIP schedule guide for how to build one.
• A debt schedule listing every existing loan, lease, and line — balance, payment, rate, maturity — so the banker can calculate global debt service.
• A personal financial statement for each guarantor.
• Interim year-to-date financials and a written use-of-funds statement.

The Metrics That Actually Decide It

Once the documents are in, five numbers carry the decision.

Debt service coverage ratio (DSCR). The banker wants 1.25x or higher: at least 1.25 dollars of cash flow for every 1 dollar of total debt payments after the new loan. Stronger files run 1.5x or above. This is the single most important number in the file.

Global cash flow. The banker does not look at the business alone. Global cash flow combines business cash flow with your personal income and personal debt obligations, because you are personally guaranteeing the loan. A profitable company can still fail if the owner carries heavy personal debt, so clean up personal obligations before you apply.

Working capital. The target is 15 to 25 percent of annual revenue — enough current assets over current liabilities to absorb the AR gap. This is the buffer that lets you make payroll while the carrier sits on the holdback.

Owner compensation normalization (add-backs). Bankers add back owner-related and one-time expenses to reveal true cash flow available for debt service: above-market owner salary, personal vehicles, one-time legal fees, non-cash depreciation. Documented add-backs can lift your qualifying cash flow materially. Undocumented ones get ignored.

Customer and TPA concentration. No single customer or program above 40 percent of revenue. If you are concentrated, show the trend improving and the relationship stable.

What Kills the Application

Most rejections are self-inflicted and predictable. These are the failure modes that send a file back, or to committee with a frown.

• Cash-basis or messy books. Cash-basis financials hide AR and WIP, the two things that prove restoration revenue is real. If the books do not tie to the tax returns, the banker discounts everything that follows.
• No WIP schedule on a company with open reconstruction work. A P&L that books revenue when invoices go out can hide profit in one period and pull it from another. Without WIP, the banker cannot trust the revenue timing.
• Undocumented add-backs. Every add-back you cannot prove with a paystub, an invoice, or board minutes gets ignored — and a long list of unproven add-backs makes the banker question the rest of the file.
• Concentration above 40 percent. One customer or TPA carrying half the revenue is the risk a banker fears most, and a strong DSCR does not erase it.
• A declining three-year trend. Falling revenue or compressing margins, even off a high CAT year, reads as a business in decline. Show the baseline and explain the storm spikes.
• Asking too late. An urgent, cash-strapped application reads very differently from a planned one. Apply before you are desperate.
• Personal debt nobody disclosed. It surfaces in the personal tax returns and the personal financial statement anyway, and the surprise costs you credibility.
• A line sized to your average month. Size it to your worst cash month — usually your busiest — at 10 to 20 percent of annual revenue, not your average.

How to Present the Package

A strong file is not just complete; it is organized to answer the banker's questions before they ask. Three things separate the applications that close fast.

A clean package that ties out. Every document reconciles to every other document and to the tax returns. This single property compresses an approval from 60 days to 30, because the banker never has to chase a discrepancy.

A clear use-of-funds statement. Say exactly what the money does and how it pays for itself — bridge the AR gap, finance dehumidifiers and air movers that generate billable revenue, refinance higher-cost debt to improve DSCR. A specific, profitable use of funds is itself an underwriting argument.

A forward-looking forecast. Do not ask the banker to take your cash management on faith. Bring a 13-week cash flow forecast that shows inflows by AR source, outflows by category, and a minimum-cash trigger line. It demonstrates that you understand the AR gap and manage it deliberately, which is the exact concern keeping the banker up at night.

Owners who prepare a banker package the same way they would prepare for a sale tend to get the best terms — the discipline is identical. See the books-prep playbook for a sale, which doubles as a lender-readiness checklist.

Common Mistakes

• Treating the AR lag as something to hide. It is structural and defensible. Frame it; do not bury it.
• Running personal expenses through the business without documentation. It inflates add-back claims you cannot prove and suppresses reported income at the same time.
• Bringing only historical financials. Bankers lend against the future. A forecast and a use-of-funds statement do more than another year of P&Ls.
• Ignoring global cash flow. A great business DSCR can still fail once personal mortgage, vehicles, and other debt enter the calculation.
• Letting one TPA dominate without a diversification narrative. Concentration is survivable if you show the relationship is stable and the trend is improving.
• Applying mid-crisis. A desperate application gets desperate terms, if it gets approved at all.
• Undersizing the line. A line too small to cover a peak-month payroll gap defeats its purpose and forces you back to the bank within a year.

Frequently Asked Questions

What credit score do I need for an SBA loan as a restoration company?

Most SBA 7(a) lenders look for a personal FICO above 680, with 700 or higher making the file easy. Below 680 you can still qualify, but the banker leans harder on business cash flow, collateral, and your debt service coverage ratio. Because SBA loans require a personal guarantee from any owner with 20 percent or more of the company, your personal credit and personal financial statement matter as much as the business books.

What debt service coverage ratio do banks want to see?

Most lenders require a debt service coverage ratio (DSCR) of at least 1.25x, meaning the business generates 1.25 dollars of cash flow for every 1 dollar of total debt payments after the new loan. Stronger files run 1.5x or higher. The banker calculates it on global cash flow, which combines the business and your personal income and obligations, so personal debt can pull the ratio down even when the company looks healthy.

Why do bankers worry about restoration companies specifically?

Because the cash-flow profile is unusual. Insurance AR runs 60 to 90 days while payroll is weekly, revenue is lumpy and storm-driven, and a single TPA program can dominate the customer base. A generalist banker sees slow receivables and concentrated revenue and assumes risk. Your job is to show that the AR is creditworthy insurance money, that the lag is structural and predictable, and that you manage it with a forecast and a line of credit.

What documents do I need for a restoration company SBA loan?

Plan to provide three years of P&Ls and balance sheets, three years of business and personal tax returns, a current AR aging, a WIP schedule, a debt schedule, and a personal financial statement. Most lenders also want interim year-to-date financials and a clear use-of-funds statement. The single biggest differentiator is whether those documents tie out to each other and to your tax returns.

Why does the banker ask for a WIP schedule?

A WIP (work-in-process) schedule reconciles contract value, earned revenue, and billed-to-date for every open job, which tells the banker your revenue is real and correctly timed rather than front-loaded billing. Without it, a lender cannot trust a P&L that books revenue when invoices go out. A clean monthly WIP schedule signals a sophisticated operator and removes a major underwriting question.

What are add-backs and why do they matter on a loan application?

Add-backs are owner-related and one-time expenses that a banker adds back to net income to show the true cash flow available to service debt — items like an above-market owner salary, personal vehicles run through the business, one-time legal fees, or non-cash depreciation. Documented add-backs can raise your qualifying cash flow substantially. Undocumented add-backs do the opposite: the banker ignores any add-back you cannot prove with a paystub, invoice, or board minutes.

How big a line of credit should a restoration company ask for?

A working line should be sized at roughly 10 to 20 percent of annual revenue, which is about one to one and a half months of peak revenue. For a 3 million dollar company that is 300,000 to 450,000 dollars. The line exists to bridge the 60 to 90 day insurance AR gap against weekly payroll, so size it to your worst cash month — usually your busiest, most profitable month — not your average.

Will customer or TPA concentration hurt my application?

Yes, if one customer or TPA program is more than about 40 percent of revenue. Concentration is the risk a banker fears most because losing that one relationship could halve your revenue overnight. If you are concentrated, show the trend is improving, document the length and stability of the relationship, and present a diversified pipeline. A documented plan to reduce concentration reassures the lender even before the numbers move.

What kills a restoration loan application fastest?

Messy or cash-basis books that do not tie to the tax returns, no WIP schedule on a company carrying open reconstruction work, undocumented add-backs, customer or TPA concentration above 40 percent, and a declining three-year revenue or margin trend. Any one of these forces the banker to assume the worst. Two or more and the file usually does not make it to committee.

How long does SBA approval take for a restoration company?

With a clean package, an SBA 7(a) loan through a preferred lender typically takes 30 to 60 days from complete application to funding. The biggest delays come from missing or inconsistent documents — a balance sheet that does not match the tax return, an AR aging that does not reconcile to the books, or add-backs the banker has to chase. A package that ties out on day one is the single fastest way to close.

Can I get an SBA loan during or right after a CAT storm deployment?

You can, but timing matters. A spike in revenue from a catastrophe deployment can actually help if you can show the underlying recurring business is healthy underneath the storm volume. Bankers normalize for one-time storm surges, so present a three-year trend that separates baseline revenue from CAT spikes. Apply before you are desperate; a lender reads an urgent, cash-strapped application very differently from a planned one.

What is global cash flow and why does the banker use it?

Global cash flow combines the cash flow of the business with your personal income and personal debt obligations into one picture, because an SBA loan requires your personal guarantee. The banker wants to confirm that after the business pays its debts and you pay your mortgage, car loans, and other personal obligations, there is still cushion. A profitable business can still fail the test if the owner carries heavy personal debt, so clean up personal obligations before you apply.

Key Takeaways

• Bankers underwrite restoration as a cash-flow risk built on the 60–90 day insurance AR gap, lumpy storm revenue, and concentration. Reframe the lag as creditworthy insurance money you manage deliberately.
• The package wins or loses on consistency: every document must tie out to the others and to your tax returns. Cash-basis books and a missing WIP schedule are the fastest disqualifiers.
• The deciding metrics are a DSCR of 1.25x or higher on global cash flow, working capital at 15–25 percent of revenue, documented add-backs, and no customer or TPA above 40 percent.
• Size a line of credit at 10–20 percent of annual revenue — one to one and a half months of peak revenue — and size it to your worst cash month, which is usually your busiest.
• Present a clean package, a clear use-of-funds, and a forward forecast. Apply before you are desperate; a planned application earns better terms than a crisis one.

Sources Cited

• RIA Cost of Doing Business Report, 2024 — AR-to-revenue and DSO benchmarks, net margin, working capital and line-of-credit sizing, and DSCR thresholds referenced throughout.

Related reading: Restoration Company Financial Benchmarks · The Complete Guide to Restoration Company Financial Management · What Is a WIP Schedule and Why Does Every Buyer Ask for One? · Getting Your Books Ready to Sell a Restoration Company · The Restoration 13-Week Cash Flow Forecast · AR Days Outstanding in Restoration