All business owners who own 20% or more of the business must provide a personal guarantee. Married couples who collectively own 20% or more of the business when their shares are combined, must both provide a personal guarantee. Please have ownership records ready. If you have owned the business for less than 1 year but the business has been operating for 5 years will be evaluated on a case by case basis.
Before You Apply; You Need to Prequalify?
In the final analysis, The Debt Service Coverage Ratio (DSCR) is a financial ratio used by SBA lenders to determine if you can afford a loan. This is calculated by dividing your business’ annual operating income by the proposed loan annual payments.
Complying with financial ratios
So long as you can comply with this requirement, SBA loans prefer borrowers with a DSCR over 1.25. For example, your business can generate $2,000,000 per year and be net $20,000. Despite, your gross earnings the net earnings is what’s utilized. Why? Seeing that, an SBA loan has a monthly payment loan and your business must be positive and have sufficient cash left over every month to pay the monthly payment. Since its a long-term loan you must demonstrate that during the last 2 to 3 years you have been able to manage cash flow on a positive basis.