3 min read
When applying for funding, though, lenders will take a more detailed look at your finances. Here’s what to expect.
Before you apply for a loan, find out if you meet the lender’s requirements, including annual revenue. To find your gross revenue, calculate your total income, including gross sales and any other money your business brings in, like rent and other income streams, for the year.
The criteria will vary by lender. Focusing on lenders whose requirements you meet will save you a lot of time and boost your chances of getting approved.
Here are some examples of how revenue minimums can vary by lender and loan type:
Traditional bank loans are known for having a detailed and lengthy application process. Your revenue might get you in the door to apply, but then the lender will want to know more.
Here are some documents that many traditional lenders may require from you to make sure you can repay what you borrow.
Not all lenders require so much documentation. QuickBooks Capital, for example, uses your business records in QuickBooks to get a full understanding of your business rather than asking for a stack of paperwork. (But it’s always a good idea to have all information on hand when you’re applying for QuickBooks Capital funding.)
Lenders will also look at what’s called your debt service coverage ratio (DSCR) and your debt-to-income (DTI) ratio. These numbers show whether you have enough income and cash flow to repay your debt.
DSCR = Net operating income (revenue – operating expenses) ÷ annual total debt payments (including the new potential loan)
Each lender will have its own definition of an ideal DSCR. But, for example, with an SBA loan, a lender may require a ratio of 1.15 or higher, meaning you have $1.15 in cash for every $1 in debt obligations.
DTI ratio = Monthly debt payments (including the new potential loan) ÷ gross monthly income x 100
The required DTI will vary by lender, but traditional lenders may prefer you stay under 36%. Some lenders may allow for a higher percentage.
If you’re looking for funding and you don’t yet meet the revenue requirements for the loan you want, there are several ways to work toward that goal.
Keep searching. You might just find a lender that you qualify for with your current revenue. Just remember to borrow responsibly, keeping an eye on your DSCR and DTI ratio.
Increase your revenue. Get new clients, sell more of your products, and find low-budget ways to publicize your brand. When you’re in a stronger financial position, try again.