Getting the right business loan is easy
With the right key financial ratios
Understand key financial ratios
A good understanding of these ratios makes getting a business loan easy because you can demonstrate a command of your business.
Your company is profitable…. Or is it?
Do you really know, or are you like many small business owners making assumptions?
Using profitability analysis allows you to understand the details. When you understand the details you’re more likely to make good financial decisions.
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Good financial analysis requires understanding the key financial ratios.
The key financial ratios
- Gross Profit Margin
- Operating Margin
- Net Profit Margin
- Current Ratio
- Quick Ratio
- Cash Ratio
- Return on Assets (ROA)
- Return on Equity (ROE)
Knowing these ratios provides you critical knowledge that you’ll need to know to make decisions, including how, or even whether, debt financing will affect your current and future growth.
Profitability Questions
Many small businesses owners make profitability decisions based around questions like:
- Did I make payroll?
- Did I pay my bills
- Did I pay myself
- How much have I been able to put aside ?
What business owners should be asking:
- What was my gross profit? Are we trending up or down?
- What should it have been?
- What is my gross profit margin compared to the industry average?
- What is my Profit Margin? What is the year over year analysis?
- What is the average profit margin for my industry, and how do we compare?
- Will my liquidity ratios support the payback of a loan?
- Will growth help or hurt me?
Your business loan is easy
Knowing the answers to the profitability questions and what your ratios are, makes the getting the loan you need easier.
The more information you have when you apply, the easier the application is. Many banks will expect you to know and understand these ratios.
Cost goes up
Any funding source needs to have trust in your ability to manage your business. This happens from providing them with the right information so that they can feel comfortable you will be able to use the funds to improve profitability and improve the chances you can pay them back.
When they don’t feel that trust, it does not mean they won’t give you the loan, but they will charge you more for what they perceive as increased risk.
Improve your chances
Get lower costs
Make it all easier.
Take our Free financial ratios course and get the understanding you need to lower borrowing costs, improve access, and make the whole process easier.
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