The Five Lines a Lender Looks at Before Saying Yes
A lender’s screening of a small business takes about twenty minutes. These are the five lines they look at, and what each one means for your readiness.
1. Debt Service Coverage Ratio (DSCR)
EBITDA divided by total annual debt service. Most banks want at least 1.20x to 1.50x depending on industry. If your number is below 1.20x, no amount of optimism in your projections will make up for it.
Lever: grow EBITDA, reduce debt, refinance to lower rate or longer term.
2. Fixed Charge Coverage Ratio (FCCR)
(EBITDA + rent) / (debt service + rent). Used heavily for asset-light businesses where rent is a large fixed cost.
Lever: renegotiate leases, restructure or pay down debt.
3. Leverage
Total debt divided by EBITDA. Most small business lenders are uncomfortable above 4.0x; some have appetite up to 5.0x with strong cash flow.
Lever: pay down principal, grow EBITDA.
4. Liquidity
Cash plus available line of credit. Banks want to see you can absorb a 60-day disruption without breaking covenants or missing payroll.
Lever: build reserves over multiple quarters; secure a committed line before you need it.
5. Personal Guarantees and Personal Credit
For most small business loans, the lender is also lending to you personally. Personal credit history and net worth matter. If you have unresolved credit disputes, resolve them before applying.
How to use this list
Run your last twelve months as a lender would. Calculate each ratio. Identify the one that is weakest. Spend the next quarter improving it. Then call the lender.