Get a Business Loan

Take your next step with fast, affordable business financing.

Apply Now
Invest

Learn how you can invest in American small business.

Resources

Get inspired, read advice, and learn how to help your business thrive.

About us

Find out how we’re building a better financial world.

Resources >   Small Business Loans  >  Term loans  >  

How a Business with Existing Debt is Assessed

Term loans

How a Business with Existing Debt is Assessed

Updated: Dec 9, 2019

How a Business with Existing Debt is Assessed

At multiple points in its evolution, a small business may require different forms of financing. For example, a company that supplies its product to retailers or large distributors may periodically need invoice financing to cover expenses. Other businesses in need of quick financing for short-term expenses may be drawn to high-interest cash advances. To that end, it is possible for a business owner to put in an application for a term loan, while still paying off existing debt.

Key to evaluating such an application is understanding the existing debt: what the outstanding balance is, as well as the repayment terms. If the existing lender mandates that the business cannot take on any other debt until it is paid off, for example, the term loan cannot be approved. The business balance sheet should reflect the existing debt. The business credit bureaus should also have it on record. Like every other application, a calculation of Debt Service Coverage Ratio (DSCR), will be necessary to determine if the business’s projected net income will cover all debt obligations. To be approved for a Funding Circle loan, DSCR must be, at a minimum, 1.15 or 2.0, depending on borrowing history. Again, as with all loans, Funding Circle will place a UCC lien against the business’ assets.

Taking on debt can be a strategic way to maintain control of a company while supercharging its growth. Nevertheless, it is important not to take on more debt than the business can support. Imprudence in this realm can be extremely destructive.

Michael Jones

Michael Jones is a Senior Editor for Funding Circle, specializing in small business loans. He holds a degree in International Business and Economics from Boston University's Questrom School of Business. Prior to Funding Circle, Michael was the Head of Content for Bond Street, a venture-backed FinTech company specializing in small business loans. He has written extensively about small business loans, entrepreneurship, and marketing.

Tags: Term loans

COVID-19 Small Business Updates

The latest news about Small Business Relief programs and COVID-19 related resources

By clicking “Sign Up for Updates” you agree with our terms of use and acknowledge the privacy policy

Keep Reading See all articles

Take your business further.

dots image

Sign up for Funding Circle newsletter!

Get our latest news and information on business finance, management and growth.

Great Review:

5779 REVIEWS