Overhead
What does it mean
Overhead represents all business expenses not directly related to the cost of goods sold. It covers indirect costs like rent, administrative wages, and office supplies. On the other hand, the cost of goods sold includes direct expenses tied to producing goods/services.
Why does it matter
The amount of overhead expenses a business has directly impacts the amount of income the business can produce (which obviously has a direct impact on their ability to repay your loan). A healthy business will keep overhead expenses from increasing at a faster pace than their revenue. Comparing a business's overhead costs to peer averages can be a good way to understand whether their expenses are out of line.
Other Relevant Terms
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