If you’re considering expanding your business, purchasing new equipment, or adding a new location, you might seek out a commercial loan. Many business owners think that as long as their business is profitable, getting a business loan will be easy. However, lenders are not just looking at your profit. Lenders are using your debt service coverage ratio (DSCR) to determine your eligibility.
What is the DSCR?
The Debt Service Coverage Ratio (DSCR) compares your operating income to your current debt. This comparison produces a number that lenders use to make a decision about granting the loan.
Example
Let’s say your business has:
· $1,000,000 in net operating income
· $400,000 of debt
· Your business would have a DSCR of 1.4
· This means your business is operating with 40% more revenue than it needs to cover expenses
Most lenders require a ratio of at least 1 to make a commercial loan, and sometimes the requirement is as high as 1.25.
Improving Your Ratio
Is there a way that you can improve your business’s DSCR? Lowering your business’s expenses can help improve your balance sheets and make your company more attractive to lenders.
At Silverback, our business is finding ways we can cut costs for your business. We perform a full analysis of your expenses, and find all the places you can decrease spending. We create a strategic plan, and do the work of implementing these money-saving changes. Then you get to enjoy greater profits and more financial flexibility.
If you’ve been turned down for a business loan due to your DSCR, contact us. We can help you reduce expenses, and improve your chances of getting the financing you need to grow your business.
