Time in business by program
Time in business sets the menu of options more than any other single factor.
- /Equipment financing: possible from month 1 with a down payment, common by month 6
- /Merchant cash advance: 4 to 6 months of card processing history
- /Working capital: 6 months of deposits
- /Line of credit: 12 months
- /SBA 7(a): 2 or more years, with strong exceptions for acquisitions of profitable businesses
Credit expectations
Personal credit affects pricing more than eligibility on short term programs. Options exist below 600, improve above 650, and reach the best terms above 700.
SBA and conventional term financing hold a higher bar, generally 660 and above along with clean recent history.
Documents to have ready
Having the file ready shortens the timeline more than any negotiation does.
- /Completed application with ownership details
- /3 to 6 months of business bank statements
- /Equipment quote when the request is equipment
- /For SBA: 3 years of business and personal tax returns, interim P&L and balance sheet, debt schedule, personal financial statement
What disqualifies a file
Frequent negative balance days, undisclosed stacked advances, and an unfiled tax year cause more declines than a weak credit score does. Each of them is fixable with a few months of clean operation.
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Debt service coverage and maximum payment
Underwriting sizes a request on cash flow, not on what you ask for. This runs the same ratio a credit analyst runs, and shows the monthly payment your cash flow supports at the 1.15x coverage most term programs look for.
Cash flow available for debt service, after owner pay and before financing costs.
The arithmetic
Net operating income = annual sales x operating margin. Annual debt service = (new monthly payment + existing monthly payments) x 12. DSCR = NOI / annual debt service. Supportable payment = NOI / 1.15 / 12 - existing payments.
Sources
- 1SBA 7(a) underwriting looks for debt service coverage of at least 1.15xU.S. Small Business Administration. SOP 50 10, credit standards for 7(a) term loans, cash flow as the primary repayment source measured on a debt service coverage basis.
- 2Amortizing payment formula: P x i / (1 - (1 + i)^-n)Standard time value of money identity. The same closed form used by the PMT function, with i as the monthly rate and n as the number of monthly payments.
- 3Occupancy costs commonly run above 5 percent of salesNational Restaurant Association. Restaurant Operations Report, occupancy cost as a share of sales for full service operations.
Estimates, not offers: Amounts, terms, and funding times are estimates based on programs commonly available in food service. Actual terms vary by program, lender underwriting, time in business, revenue, and credit profile. Nothing here is an offer of credit or a guarantee of approval.