What Is a Good Debt-to-Income Ratio for a Small Business?

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Calculating Debt-to-Income Ratio
Debt-to-Income Ratio Calculation Examples
Borrower #1: With a monthly income of $7,000 and monthly debts of $1,500, the debt-to-income ratio would be 21.4% (that’s ($1,500 / $7,000) X 100). If the new loan payment added another $300 to the company’s monthly debt, then the ratio would become 25.7% (that’s ($1,800 / $7,000) X 100). Borrower #2: With a monthly income of $5,000 and monthly debts of $1,500, the debt-to-income ratio would be 30%. If the new loan payment added another $300 to the monthly debt, then the ratio would become 36%. Borrower #3: With a monthly income of $9,000 and monthly debts of $3,500, the debt-to-income ratio would be 38.8%. If the new loan payment added another $300 to the monthly debt, then the ratio would become 42.2%.
What Is a Good Debt-to-Income Ratio for a Small Business?
1. Tighter Cash Flow
2. Prone to Late Fees
3. Stagnant Business Growth
Lowering Your Business’s Debt-to-Income Ratio
In what areas could money be saved? Talk to vendors to brainstorm ideas. Are there ways to buy in bulk to reduce costs? How can your business tweak its purchasing so that extra inventory and supplies don’t sit on the shelves? What are the interest rates on your business’s loans? Are they good rates? If your business sells multiple products, which ones are selling the best? Which ones have the best margins (make the most profit)? What is the standard margin for the industry? What combination of price raising and cost lowering can get your margin to the sweet spot? How does this position your business and its pricing against its competitors?
Examples of Small Business Financing
The Takeaway
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About the Author
Kelly Boyer Sagert is an Emmy Award-nominated writer with decades of professional writing experience. As she was getting her writing career off the ground, she spent several years working at a savings and loan institution, working in the following departments: savings, loans, IRAs, and auditing. She has published thousands of pieces online and in print.
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