Business Loan Qualification Calculator
A business with $240,000 in revenue, $60,000 in profit, and a $36,000 owner draw keeps $24,000 a year for debt — $2,000 a month. Against $1,500 of existing debt plus a $50,000 loan at 9% over 5 years ($1,037.92 a month), the DSCR is 0.79, well below the 1.25 lenders usually require. The application fails, and the most this cash flow supports is about a $4,817 loan.
Lenders approve on cash flow, not revenue — and this calculator shows the exact ratio they look at.
The ratio that decides. DSCR = net operating income ÷ total debt service, and lenders usually want 1.25 or more. Here the business generates $2,000/month of lendable cash against $2,538 of monthly service — a DSCR of 0.79. The loan is declined before revenue is ever discussed.
Calculator
Enter your business financials and the loan you want. Results update instantly.
How This Calculator Works
Start with annual profit before owner pay, then subtract what the owner must take home — that cash is spoken for and cannot service debt. What remains is net operating income: the yearly cash a lender counts.
Divide that by all yearly debt payments, old and new. A DSCR of 1.25 means the business earns 25% more than its debt costs, which is the cushion lenders demand against a bad quarter. Below 1.0 the business cannot cover its debts at all.
DSCR = (profit − owner draw) / (existing debt + new loan payments) — approve at 1.25+
Worked example
Using the defaults — $240,000 revenue, $60,000 profit, $36,000 owner draw, $18,000 existing debt, and a $50,000 loan at 9% over 5 years:
Profit before owner pay is $60,000, but the owner must live on $36,000. Lendable cash is $24,000 a year ($2,000 a month) — revenue never enters the calculation.
The standard amortization formula on $50,000 at 9% over 60 months gives $1,037.92 a month. Added to $1,500 of existing payments, total service is $2,538 a month ($30,455 a year).
DSCR = $24,000 / $30,455 = 0.79. The business falls $14,069 a year short of the $38,069 lenders require at 1.25x — and inverting the formula shows this cash flow supports at most about a $4,817 loan on these terms.
The calculator above returns these figures exactly. Raising profit, cutting the draw, clearing old debt, or requesting less all move the ratio — try each lever above and watch the verdict change.
What moves this application from fail to pass
Same business, same loan — one change at a time, holding everything else at the defaults.
| Change | NOI (annual) | DSCR | Verdict |
|---|---|---|---|
| Defaults ($60k profit, $36k draw) | $24,000 | 0.79 | Fail |
| Profit rises to $80,000 | $44,000 | 1.44 | Pass |
| Draw cut to $20,000 | $40,000 | 1.31 | Pass |
| Existing debt cleared ($0) | $24,000 | 1.93 | Pass |
| Loan cut to $25,000 | $24,000 | 0.99 | Still fail |
Clearing the $18,000 of old debt helps more than halving the request — old service is the heaviest weight on the ratio. Every row is computed live by the same formula the calculator uses.
Common mistakes with this calculation
- Quoting revenue instead of cash flow. $240,000 of revenue with $36,000 of owner living costs and $18,000 of old debt leaves $24,000 lendable. Lenders divide by that, never by revenue.
- Forgetting the owner must eat. Profit before owner pay is not available for debt. A business that needs every dollar of a $60,000 profit to live on has a lendable NOI of zero.
- Requesting the maximum instead of the supportable. $50,000 at 9% needs $38,069 of NOI at 1.25x; this business has $24,000. Ask for $4,817 on these terms — or fix the cash flow first.
- Hiding existing debt. Lenders pull credit and bank statements; undisclosed $1,500-a-month service surfaces in underwriting and kills the application plus your credibility.
When this calculator does not apply
- The 1.25 threshold is the conventional commercial standard; SBA, merchant cash advance, and revenue-based lenders use different tests entirely.
- It treats profit as cash. Businesses with heavy receivables or inventory timing gaps can pass on paper and still miss payments.
- Owner draw is modelled as a fixed living cost; variable draws and reinvestment change the available cash.
- Collateral, guarantees, credit history, and time in business all matter in underwriting and sit outside this ratio.
Frequently Asked Questions
What DSCR do lenders require?
Most commercial lenders want 1.25 or higher — earnings 25% above debt service. Some SBA programmes accept 1.15-1.20 with strong collateral; merchant cash advance providers often ignore DSCR and price on revenue instead.
Can revenue alone qualify a business loan?
No. A $240,000-revenue business with $36,000 of living costs and $18,000 of old debt has just $24,000 lendable. Revenue without margin is invisible to underwriting.
How do I raise my DSCR before applying?
In order of leverage here: clear old debt (lifts this case to 1.93), raise profit, or cut the draw. Requesting less helps least — halving the loan to $25,000 still only reaches 0.99.
Does the owner draw really count against me?
Yes, because the lender must assume you keep living. Every dollar of draw is a dollar unavailable for service, which is why owner-heavy small businesses so often fail the ratio.
Sources & Methodology
This calculator uses standard financial formulas. See our methodology page for the full derivation.
- Small Business Lending U.S. Small Business Administration
- Business Loan Requirements NerdWallet
Last reviewed .
Key takeaways
- DSCR = (profit − owner draw) / total debt service; lenders want 1.25+.
- This business: $24,000 NOI against $30,455 of service = 0.79. Declined.
- It falls $14,069 a year short of the $38,069 required.
- The same cash flow supports at most about a $4,817 loan at 9%/5y.
- Clearing old debt moves the ratio most: 0.79 to 1.93 in one step.