Debt to Income Ratio for Business Loan

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Debt to Income Ratio for Business Loan
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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-to-Income Ratio. 
• Improve Credit Score to avail business loan
  easily.

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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.

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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 businesss debt coverage ratio and
  the owners 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 dont have
  any collateral, then it will help you to avail
  the business loan.

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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.

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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.

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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.

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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.

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