18 Business Loan Requirements
5 – Disclosure of Other Debt (Business Debt Schedule)
When applying for any type of business loan product, the lender is going to require an accounting of all current outstanding debts. This is where the Business Debt Schedule comes in. Especially if you are a small business, the lender needs a complete picture of what you owe versus what you have coming in. If you are too “debt-heavy” and thus have a number of outstanding loans, then the chances of getting a new business loan may be less than if you were not burdened with such debt.
When calculating the amount that you can, in fact, afford to borrow, the lending institution will use a number called the debt service coverage ratio (DSCR). What this number does is to basically compare debt to cash flow. Simply put, the lender will divide your annual net operating income by your annual debt requirements. The resulting number, generally speaking, should be greater than one, thereby signifying that you can, in fact, pay back any potential loan as well as cover the cost of all current debts. If the number is not greater than one, there is a good chance your application may not qualify. That doesn’t mean however that you can’t reapply once you’ve paid off some of that outstanding debt.
Sometimes businesses seek financing to help pay down existing debt. This may be possible; however, it is important to have reached certain milestones in terms of the old loans. While this can get a bit confusing, at First Union we are here to help. We’d be more than happy to review your current financials and see where you stand as far as your ability to procure new funding. The goal is to ensure that you’re comfortable and not taking on too much debt as you do not want company operations to suffer. Call today and let us see what we can do for you!
You’re reading Part 5 in our 18 part series – 18 Business Loan Requirements