How Much Financing Can Your Business Afford?

Posted By Kalamata Capital LLC || 10-Apr-2017

When applying for smallbusiness financing, business owners should think about how much the business can afford to repay. It is important not to stress cash flow. The Cash Flow Coverage Ratio can help determine a responsible funding amount.

Cash Flow Coverage

Calculating Cash flow coverage will help business owners determine an affordable payment size based on monthly cash flow.

The formula divides monthly operating cash flow by the desired payment amount to determine how much a company can afford to pay on a monthly basis. To calculate monthly cash flow, simply subtract the monthly expenses from the monthly revenues.

Most cash flow funders will require a minimum Cash Flow Coverage Ratio of 1, and would like some cushion.

It is difficult to determine what is the right Cash Flow Coverage Ratio for a business because there are many factors to consider including: seasonality, stability of industry, diversification of customer base, and size of business.

Kalamata Capital can help you think about the factors to consider for your business.

Once you determine an affordable payment using the Cash Flow Coverage Ratio, then you can begin to answer: How Much Financing Can Your Business Afford.

Call Kalamata Capital at 884-551-7511 to speak with a financing specialist and get started today.

Categories: Small Business, Tips, Funding, SBA