Are you looking for a low-cost loan to grow your business? There’s a question every applicant should ask before they jump into the process: “Is my business loan ready?”
If your business is loan ready and financially healthy, you’ll save time and effort when going through the application process. Most importantly, financially healthy companies generally secure loans with lower rates and longer terms. Low cost funds are the best way to spark growth and savings.
We’ve identified seven factors banks look at when considering lending to a business. One important ratio is your Business Debt Usage. We’ll help you understand this important metric and give tips you can use to improve your score if necessary.
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The debt your business owes is important, but more critical is how you manage revolving accounts like credit cards or lines of credit.
Your Business Debt Usage, also referred to as the debt-to-equity ratio, compares your total outstanding business debt to annual business revenue or total business assets.
NAV offers this example:
Let’s say you have a credit card with a $1000 credit limit and the balance that appears on your credit report is $500. You are using 50% of your available credit, and that means you have a 50% debt usage ratio. Now let’s say your balance is $200 instead. Your debt usage ratio is 20%.
To qualify for a loan, your business debt needs to fit the lender’s criteria. Banks look at Business Debt Usage to assess if the amount of debt your business carries is appropriate for the size of your business and the industry you’re in.
Credit experts report that keeping your ratio below 30% will help you to maintain a good or excellent credit score.
These three tips can help you improve your score:
For more information on banks lending criteria, review this blog post that summarizes the seven factors banks consider. We have in-depth posts about each if you’d like to take a deeper dive.
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The SmartBiz team believes in 100% transparency and we’re here to help you get SBA loan ready if you’re not quite there. Not sure if you qualify for an SBA loan? Try the new SmartBiz Advisor™* online, educational tool to learn about how you can get your business SBA or bank loan ready before you apply – no cost involved. You can assess key criteria banks consider and where your business stands on each. Learn more about SmartBiz Advisor here.