Why Business Debt Usage is Important to SBA Banks

The reasons for small business loan denials have historically been unclear. An entrepreneur can spend valuable time and effort on a loan application only to be rejected without explanation.

The SmartBiz Loans team recognized this problem and went to work. 7 key criteria were identified that banks typically use to evaluate businesses seeking an SBA loan. The team created a FREE, online educational tool, SmartBiz Advisor™.

SmartBiz Advisor shows where business owners stand in those 7 key areas and offers actionable advice to help you improve your numbers, if needed. * To generate your unique Loan Ready Score ™, sign up for SmartBiz Advisor here at no cost, answer a few questions and upload your most recent tax return to get started.

This post will explain business debt usage, one of the 7 important ratios used by SBA banks to evaluate the financial health of a company.

Business Debt Usage

Business Debt Usage is derived by adding up the outstanding balances on all existing business debt, including your SBA loan, and dividing that number by the company’s total revenue or total assets.

Here are the terms you need to know to help you calculate your company’s business debt usage.

  • Debt:  Debt is money owed by a business. Debt can include bank loans, credit cards, money owed to suppliers or service providers, lease payments and more.
  • Revenue: Revenue is the amount of money that a company actually receives during a specific period. It is the top line or gross income figure from which costs are subtracted to determine net income.
  • Assets: Business assets are property or equipment a company owns that is used primarily for running the business. Examples of tangible business assets include cash, commercial real estate, equipment, inventory, office furniture and vehicles. Trademarks and patents are examples of intangible assets.

Learn how to calculate business debt coverage | SmartBiz Advisor from SmartBizLoans on Vimeo.

t Does Your Business Debt Usage Mean?

Banks look at Business Debt Usage to assess if the amount of debt your business carries is appropriate for your business size and industry type. The calculation is used to help banks understand how you’re paying for your business. A high ratio means that banks will be less likely to say yes to lending addition funds, and therefore, increasing liabilities. In general, banks are looking at the ability of your business to develop revenue, profits and cash flow to cover expenses.

What’s Your Goal?

Keep your business debt usage ratio below 30% to help maintain a good or excellent credit score.

You Can Improve Your Business Debt Usage Ratio

These three tips can help you improve your score if needed. Visit your SmartBiz Advisor dashboard for more resources.

  • Pay off your balance in full every month. When you carry a balance, you have less available credit. This affects your business debt usage ratio and overall Loan Ready Score.
  • Request a credit line increase. If you have a credit card with a low credit limit, consider asking the issuer for an increase. Important to note: a limit increase request can trigger a hard pull on your credit report. This can hurt your credit if you have a short credit history. When you contact your credit card issuer, ask whether a hard inquiry will be initiated. It might be possible to take a smaller increase and forgo the pull.
  • Set up balance alerts. Keep an eye on where you stand by setting up balance alerts. You’ll stay on top of your balance and card activity.


Not sure if you qualify for an SBA loan? Try the new SmartBiz Advisor™, an 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.

* 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.