How to Determine the Amount You Need to Borrow

Apr 29, 2019 | Small Business

If you operate a business, there’s a huge chance you’ve already taken out a business loan – or at least considered applying for one. Contrary to popular belief, acquiring a Seattle business loan can be the best thing that ever happened to your business.

Business owners often turn to small business loans to finance slow periods and/or take their business to the next level. To facilitate a smooth business loan application, it’s important you figure out the amount of money you really need to reach your goals. Here are four factors you need to consider in order to determine how much you need to borrow.

1.    Amount of Money Your Business Needs

Evaluate your business and make an estimate of how much money you really need. If you task lenders too much, they’ll question your ability to pay back the loan; if you don’t ask for enough, you won’t be able to fund your business. So, in order to arrive at an accurate estimate, create a comprehensive cost projection on how you plan to use the funds. Other than that, you should also make profit and loss cash flow statements that shows how the revenue you’ll generates a profit.

2.    How Much You Can Afford

When taking out a loan, you have to make sure you can repay it. Lenders will evaluate your business’ debt service coverage ratio (DSCR) or your company’s available cash that will be used to repay the loan within the repayment term. You can also calculate your own DSCR by knowing what your cash flow is, as well as the amount of money you have left to make debt payments.

Additionally, potential lenders may check your personal debt to income ratio (DTI), which calculates your monthly income and current levels of debt. They’ll look at your mortgage payments, car payments, credit cards, and other personal debt.Ideally, your personal debt should be no more than 36% of your monthly income.

3.    Cost of the Loan

You need to factor in the total cost of the loan, including the closing costs, interest rates, and the total amount you will need to pay back. It’s important to ask these questions before you agree to a loan. By knowing the total cost of the money you borrow, you can determine the type, and the amount of loan you need and can afford.

4.    Financing Needs in the Future

Lastly, you also should consider your future financing needs when applying for a loan, especially if your business plan calls for an expansion in the near future. Be sure you figure out whether you will need a smaller loan that helps build your credit or secure a larger loan for the future. By planning ahead of time, you will make smarter decisions regarding your financing needs both now and in the future.

Seattle Business Loans – Small Business Loans for You

Applying for Seattle business loans doesn’t have to be tedious. SMB Compass offers a variety of loan programs for small business owners just like you in every corner of the United States. Our team of lending experts will be happy to assist you throughout the entire application process.


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