Another measure of credit-worthiness is CAPACITY.
What it means:
Put simply, credit reviewers have to know that your business generates sufficient cash to repay the funds you obtain. There has to be tangible evidence to prove your cash flow as being able to support the requested debt. A commonly used evaluation methodology is the debt service coverage ratio, which calculates the business EBIDTA (earnings before interest, taxes, depreciation, and amortization), taxes and capital expenditures against projected principal and interest payments over 12 months.
What they will do to assess your capacity:
- Look into your company’s historical and projected cash flow and compare such to the projected debt service requirement.
- Expect you to successfully defend your projections, if they are higher than your historical cash flow.