Page 1

Debt to Income Ratio for Business Loan


Prelude – In business loan, the lenders use several tools to analyze your financial condition. – Credit Score plays a major role in the loan process. However, credit score is not sufficient to avail the loan. – The other key factor for availing the business loan is the ‘Debt-toIncome’ Ratio. – Improve Credit Score to avail business loan easily.


Defining Debt to Income Ratio? – Debt to Income ratio is a fraction of your monthly debt to the monthly income. – This ratio enables the lender to judge your financial health. – Also acts as a qualifying factor in the business loan. – If you stand in a good zone, then this ratio will help you to know how much more money you can take from the lender in the form of a loan. – If you are in a dead zone then it is recommended to avoid further loan as it can create a severe impact on your credit score.


How Debt to Income Ratio is important? – If we talk from the side of the lender, then it plays a significant role and they will calculate your debt potential and how much you can pay against the loan. – If the debt to income ratio is good, then the probability of getting the loan is higher. – It helps you to get the business loan at a low-interest rate. – It helps you to take multiple loans. – It reduces the repay stress as the ratio indicates your healthy financial condition if the same is in good figure. – For a small business, the lenders usually look for the small business’s debt coverage ratio and the owner’s debt to income ratio, both plays a crucial factor amid the processing of the loan. – It shows the trustworthiness and your capacity to run the business and if in case you don’t have any collateral, then it will help you to avail the business loan.


How to calculate Debt to Income Ratio? – One must figure out your monthly debt and monthly income. – Monthly Debt - includes all your recurring debt occurred in a month which includes small business debt and other loans you have taken from the lenders. – Monthly Income - includes your monthly income from the business excluding tax.

– Now, you may be wondering whether you rest in the good zone or risky zone.


Are you in Good Zone or Risky Zone? – The slab of Debt to Income Ratio varies as per the lender. – The average ‘Debt to Income Ratio’ is 36%. – If the ratio is less than 36%, then you are in a comfort zone and can easily avail the business loan. – Some lenders also offer the loan at 40%. – If it is higher than 40% then chances of getting a loan will be harder. – It is better to do some research to choose which lenders provide variation in the Debt to Income Ratio.


How to improve Debt to Income Ratio? – One must focus to increase his/her business income. As more the revenue, less will be the debt. – It is always recommended to clear the dues and if possible, do the same on time and this will minimize your debt and will build your Debt to Income ratio. – If you have higher debt, then try to avoid for the further loan from the lenders. First, clear all the dues and then focus on your business model wisely so that you can earn more profit.


From where to get business loan, if the Debt to Income Ratio is high? – You may be wondering what to do if your ‘Debt to Income Ratio’ is high. As mentioned in previous slide, it is impossible to avail business loan from the lender in that case. – Merchant Cash Advance Companies will help you to offer business loan. – These companies focus on your collateral capacity and the dues payment. Instead of looking into your debt history. – If the above factors are good, then you can easily avail the loan from such companies. – These companies process your application within 15 minutes. – Within an hour, you will get to know whether you are getting a business loan or not.


   Thank You !!!   

Profile for kpulak

Debt to Income Ratio for Business Loan  

Debt to Income ratio is a fraction of your monthly debt to the monthly income. This ratio enables the lender to judge your financial health...

Debt to Income Ratio for Business Loan  

Debt to Income ratio is a fraction of your monthly debt to the monthly income. This ratio enables the lender to judge your financial health...

Profile for kpulak
Advertisement