February 5, 2018 By Suzanne Robertson

Does your small business need working capital? Perhaps you want to refinance expensive debt. Maybe you’re in the position to purchase or refinance owner-occupied commercial real estate.

Whatever your small business goals, low-cost funds can spark growth and savings.

At SmartBiz Loans, we’re sharing important information you need to know to get SBA loan ready. No longer a mystery, we have identified 7 key metrics lenders consider before granting a small business an SBA loan.

SBA loans are known as the “gold standard” in small business loans. SBA Loans have low-rates and long-terms lead to very low monthly payments – you won’t crunch your cash flow.

Here, we’re going to explore Personal Debt Usage. We’ll explain what it is and how you can improve your Personal Debt Usage score if necessary.


What is Personal Debt Usage?

The debt you personally owe is important, but more critical is how you manage the debt on revolving accounts like credit cards or a line of credit. Unlike a loan, a revolving account doesn't close automatically when the balance reaches zero.

Personal Debt Usage compares the total personal debt you owe to the total limits on your credit accounts. It’s an important indicator to banks of personal liquidity should unexpected expenses occur. Liquidity refers to how easy it is to convert an asset to cash. For example, if a fire damages your business, you’ll have out of pocket expenses for repairs until insurance comes through. If you don’t have room on your revolving accounts, you might have to use funds earmarked for your loan payment. Banks bet on borrowers that are not likely to default on loan payments.

[bctt tweet="Banks are more likely to bet on borrowers that won't default on loan payments. Your personal debt usage is a good indicator of how you manage debt! #smartbizloans" username="smartbizloans"]  

How is Personal Debt Usage Calculated?

Banks calculate your personal debt usage ratio by comparing the balance on each of your credit cards or other revolving accounts to the credit limit on that account. Here's an example from Nav:

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.


What's the Goal?

Banks typically prefer personal debt usage to be less than 30%.


How to Manage Personal Debt Usage

Here are tips to manage your personal debt usage.

  • Check your balances at least 1x week.
  • Make small payments during the month instead of letting charges build up and sending one big payment on the due date.
  • Consider asking your card issuer to raise your credit limit, but only if you won’t be tempted overspend. Jumping to a higher limit will instantly lower your utilization ratio.
  • Keep in mind that per-card utilization counts. Retail stores and others offer credit cards as a financing option. However, these cards tend to have low limits. This can cause your utilization to soar and your score may suffer.


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.

*What you need to know: The information provided through SmartBiz Advisor, including the Loan Ready Score, is for educational purposes only. SmartBiz Advisor is not a financial or legal advisor as defined under federal or state law. Use of this information is not a replacement for personal, professional advice or assistance regarding your finances or credit history