How do lenders evaluate my debt-to-income ratio?

Lenders assess your debt-to-income (DTI) ratio by determining your total debt commitments each month and determining how that compares to your gross monthly income. This helps lenders to understand how much money you are currently using to service existing loans, and how much room you have for other debts.

The DTI ratio is calculated as follows:

DTI Ratio = (Total Monthly Debt Payments/Gross Monthly Income)×100

• Lenders assess all forms of debt; term loans, working capital loans, equipment financing, and all other recurring financial obligations.
• A lower DTI ratio shows that the business is not overly leveraged, which means that your business is accurately taking on new debts and is more likely to be able to make its loan repayments to its new banking partner without undue financial stress.
• Each lender could come up with its own acceptable DTI based on its own internal risk policy and offer limits for your industry. If the lender finds that the DTI is high, the lender could do a few things like, lowering the amount it can offer, increasing the price with a higher interest rate or potentially rejecting your application outright.