December 20, 2017 By Suzanne Robertson

SmartBiz Loans is excited to help you get your business SBA loan ready by providing your business with our proprietary Loan Ready Score* when you sign up for our free online educational tool, SmartBiz Advisor.

SmartBiz Advisor helps you learn how banks typically evaluate your business and recommends ways to help you increase your likelihood of approval when applying for the low-cost SBA and bank funding you deserve!

The Loan Ready Score, built by analyzing thousands of small business financials with our intelligent platform, helps you learn how your business stacks up and educates you about the factors banks consider.

We help you learn where you stand for each of 7 key criteria banks typically use to evaluate your business:

Combined Debt Coverage (DSCR) Business Debt Coverage Business Credit Personal Credit Business Debt Usage Personal Debt Usage Business Revenue Trend

In addition to outlining what you need to know, we’re sharing actionable insights to help you prepare your business to be SBA loan-ready. Your personalized Loan Ready Score is a useful measure to help you assess your probability of approval for a low-cost SBA loan. Read on to learn more about how banks evaluate the creditworthiness of your business and how you can strengthen your business profile.

Combined Debt Coverage

It’s no surprise; banks want to know that you can cover your loan payment.

They do this by evaluating your Combined Debt Coverage, also known as DSCR or Debt Service Coverage Ratio. Your Combined Debt Coverage helps banks determine whether there is enough personal and business cash flow to cover the payments for all personal and business debts.

Business Debt Coverage

Business Debt Coverage is used in assessing the financial health of your business. This metric determines if your business has enough business cash flow to cover the payments for all business debts.

Business Debt Coverage compares your company’s cash flow to its total annual business debt payments – including any monthly SBA loan payments.

Business Credit

Like personal credit, your business has its own credit scores. These scores indicate your business’s ability to repay a debt. Several factors influence your business credit score, including: payment history, credit utilization ratio, company size, industry risk, and more.

There are a few different business credit scores:

  • FICO® LiquidCredit® Small Business Scoring Service Scores range from 0 to 300, where the minimum score to pass the SBA’s prequalification is currently 140.
  • Dun and Bradstreet PAYDEX Score Scores range from 1 to 100, higher scores indicating better payment performance.
  • The Intelliscore Plus from Experian is used by lenders to determine the likelihood of delinquency over the next 12 months. Again, scores range from 1 to 100.

Just like a Personal Credit score, a number of factors come into play when calculating a Business Credit score.

Personal Credit

Personal credit scores range from 300 to 850 and reveal financial stability and responsible credit management. Experian, Equifax and TransUnion are the agencies that compile credit scores. The goal here is to achieve the highest score possible. You might have slightly different numbers from each agency but they will all be similar as the score is based on the same criteria. For detailed information regarding how your personal credit score is calculated, check out this SmartBiz Small Business Blog article: 5 Factors Used to Score Your Credit

Business Debt Usage

Banks typically calculate Business Debt Usage in two ways - Using Revenues or using Assets.

Either way, Business Debt Usage compares your total outstanding Business Debt to annual Business Revenue or total Business Assets.

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.

Personal Debt Usage

Can you access credit if you need it? Personal Debt Usage compares the total personal debt you owe to the total limits on your credit accounts. Personal Debt Usage indicates personal liquidity if unexpected expenses come up.

The amount you owe is important but more important is how you manage revolving accounts. Revolving credit accounts include credit cards as well as other lines of credit. (Excluded are home equity lines of credit or installment debts like car loans.)

Personal Debt Usage is calculated by taking the sum of all outstanding balances on your revolving credit accounts and dividing it by the sum of the credit limits on those accounts.

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

Here’s an example from a NAV, a site that offers a free way for business owners to manage their business credit:

If 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. If your balance is $200 instead, your debt usage ratio is 20%.

Business Revenue Trend

Your business revenue trend is important to banks, indicating whether or not your business is growing.

You can calculate your Business Revenue Trend by looking at the average growth in revenues from your earliest tax return, to your most recent tax return.

Banks typically look for revenue growth trends that match or exceed your industry.


In Conclusion

The Loan Ready Score you can access by signing up for SmartBiz Advisor was built on our strong belief that transparency in the lending process is crucial. The more you know, the better opportunity you have to get SBA loan ready.

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 – no cost involved. You can assess key criteria banks consider and where your business stands on each. Learn more about SmartBiz Advisor here.

* The Loan Ready Score is for educational purposes and is not the same as scores used by lenders for credit decision. SmartBiz Advisor is an educational tool to help you learn about how lenders may view your business. As such, you should not rely on this as the primary source of your business or personal financial decisions SmartBiz Advisor is not a financial or legal advisor as defined under federal or state law.