You’ve sent your business and personal tax returns, financial statements, and bank statements.
Now what?
Lenders figure out if you can repay the loan.
They start with a basic debt service calculation.
They’ll review your annual revenue and add-back:
- Rent, (if buying a building for your business, for example)
- Interest,
- Depreciation,
- Amortization,
- Officer’s salary, then
- subtract for a draw (you must pay your personal bills, right?)
This leaves you with cash available to service your debt.
Your projected debt service is your annual loan payment.
The difference is your excess cash flow.
Your debt service calculation is your cash available divided by the projected debt service.
The SBA can go as low as 1.0. Most lenders will be at 1.2-1.4
The graphic shows a $2.0MM loan request for a business with $1.5MM in revenue.
COMING UP: Global Debt Service
