Lenders look at debt-to-income ratio to measure the percentage of your monthly debt payments against your monthly gross income, with most lenders requiring a debt-to-income ratio of 50% or lower. As you may have guessed, SME lenders are wary about lending to borrowers who already have other loans.
As well as debt-to-income ratio, lenders will almost certainly want to see a balance sheet. This is a basic document that summarises your business’s financial health, including assets, liabilities and equity. Your total assets should equal the sum of all your liabilities and equity accounts. Your balance sheet helps determine if you can spend to grow or if you should save cash for a rainy day. Maintaining an accurate balance sheet is a crucial task for every business.
To make your personal profile stronger, keep a low balance on credit cards and lines of credit (usually around 10% per account). A high credit card balance not only negatively impacts your credit score, but also affects your personal financial health.
Lenders usually require a personal guarantee from business owners. Even if you have an LLC or a C corporation, the lender can pursue you personally if you can’t repay the loan. It’s important to note that not all debt is equal; commercial real estate, business acquisition loans, lines of credit, and merchant cash advances all hold different weights with the lender. If your debt is backed by assets you're much more likely to be approved, regardless what kind of debt you have.