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 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.
Learn how to calculate business debt coverage | SmartBiz Advisor from SmartBizLoans on Vimeo.
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.
Keep your business debt usage ratio below 30% to help maintain a good or excellent credit score.
These three tips can help you improve your score if needed. Visit your SmartBiz Advisor dashboard for more resources.
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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.