Capacity

Capacity

– (sufficient cash flow) is a quality with diverse conditions. It simple means the ability to pay a specific amount of obligation when due, or a measure of the ability to pay. No matter what stage your business is in, a lender has to be comfortable with your business plan and projections of revenue that should provide sufficient cash flow to repay the loan.

Projecting financials for your business can be onerous, but the future of your business is counting on these numbers. Projections should always be accommodated by a strong narrative supporting your thought process in obtaining your financial projections.

Your numbers have to make good business sense in order to properly support the business operations on a day to day basis; CASH FLOW! Generally you need debt service coverage of 1.25:1; this ratio with some lenders is showing signs of increasing to 1.33:1. In addition, lenders would like your debt to income to be below 50%. Some lenders show exception, depends on the deal.

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