|
The ability to repay the proposed loan from earnings and resultant cash flows generated
by the business is critical to obtaining any loan. Based on banking guidelines, the
following method is utilized by lenders and the SBA in determining repayment ability.
|
| Period
Covered |
Prior
Year End |
Last
Year End |
Interim
Period |
| Months
in Period |
12
Months |
12
Months |
6
Months |
| Revenues |
$1,000,000 |
$1,250,000 |
$900,000 |
| |
|
|
|
| Net Income |
$18,918 |
$34,224 |
$32,418 |
| Plus: Interest |
5,000 |
5,000 |
2,500 |
|
Depreciation |
10,000 |
10,000 |
5,000 |
|
Eliminated Rent |
12,000 |
12,000 |
6,000 |
| Available Cash Flow |
$45,918 |
$61,224 |
$45,918 |
| Less: SBA Loan |
(49,224) |
(49,224) |
(24,612) |
|
Existing Debt |
(12,000) |
(12,000) |
(6,000) |
| Total
Debt Service |
(61,224) |
(61,224) |
(30,612) |
| Net Cash Flow |
$(13,926) |
$0 |
$13,926 |
| |
|
|
|
| Debt Service Coverage |
0.75 |
1.00 |
1.50 |
Based on the above scenario, the company has adequate cash flow to service the proposed
SBA loan and the company's existing debt. SBA guidelines call for a debt service
coverage ratio of 1.00 in the last year end period and 1.50 in the interim period.
These are guidelines only. A number of other factors might affect your
coverage.
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