How much can your business afford to borrow?

Lenders reason backward

Most owners arrive with an amount in mind. Lenders arrive with a payment in mind. The Capital Selector term loan page puts the order plainly: lenders want the payment to sit comfortably inside your cash flow, so they reason backward from what you can service, not just forward from what you ask for.

The federal rule behind that habit is short. Under 13 CFR 120.150, an SBA loan must be "so sound as to reasonably assure repayment," and the criteria a lender may weigh include the earnings or cashflow of the applicant. Cash flow is not one factor among many. It is the one the file is built to test.

The test has a name: debt service coverage. SBA defines it as operating cash flow divided by debt service. Operating cash flow is earnings before interest, taxes, depreciation and amortization. Debt service is the future required principal and interest payments on all business debt, including the new loan you are asking for. A ratio of 1.00 clears the payments with nothing left over. Lenders want a margin.

What SBA publishes

These thresholds come from SOP 50 10 8.1, effective 1 October 2026, SBA's 7(a) and 504 origination policy. They bind SBA-guaranteed loans. Non-bank lenders set their own, on the same arithmetic.

On a Standard 7(a), meaning loans greater than $350,000, coverage must be at least 1.15 on a historical and/or projected cash flow basis, and at least 1:1 on a global basis. On a 7(a) Small loan, meaning $350,000 or less, other than changes of ownership, coverage must be at least 1.10:1 on either a historical or projected basis. On an SBA Express loan, up to $500,000, no numeric coverage floor is set: the credit analysis must demonstrate a reasonable assurance of repayment, and the credit decision is left to the business judgment of the lender.

The SOP also tells the lender how to check a 7(a) Small loan. The two most recent months of activity on your primary operating account are reviewed to confirm every debt was included in the calculation. A debt left off the schedule still shows up in those statements, and still lands in the denominator.

Turning the ratio into a number

Run it in reverse and the ratio gives you a ceiling. The Capital Selector calculator opens on a $100,000 term loan at 9.0 percent over 60 months and returns a monthly payment of $2,076, or roughly $24,900 a year of debt service. To clear 1.15 on that payment alone, a business needs operating cash flow of about $28,600 a year. To clear 1.10, about $27,400.

That is arithmetic on the calculator's default scenario, not a quote. Capital Selector states that any amounts or schedules shown on the site, including in calculators, are illustrative and for education only.

The debt you already carry

Coverage is a ratio, so the denominator matters as much as the numerator. Every payment you already make eats the cash flow the new loan wants.

Capital Selector weights this directly. Debt load carries 12 percent of the readiness score, described as what you already carry against what you earn, and the readiness tool takes your existing monthly debt payments as an input. Its published advice is to bring debt-to-income under 30 percent. That weighting is Capital Selector's model, not a lender's underwriting formula, and the score is guidance rather than a credit decision.

Not every structure amortizes

All of the above describes a fixed-payment installment loan. Revolving lines, equipment financing, accounts-receivable financing and merchant cash advances do not amortize the same way. An advance is the purchase of a portion of your future receivables rather than a loan, priced at a factor rate rather than an APR, with remittance typically taken as a share of daily or weekly revenue. Total dollars are known up front, the timing is not, and the remittance pulls on the same cash flow a coverage test measures.

Capital Selector is a financing marketplace, not a lender, and does not make credit decisions. Being matched is not an approval. Amounts, terms and rates are determined solely by the lender after its own review. This guide is general information, not financial or legal advice.

Questions

What coverage ratio do lenders want? On SBA-guaranteed loans the published floors are 1.15 for a Standard 7(a) above $350,000 and 1.10:1 for a 7(a) Small loan. SBA Express publishes no numeric floor and leaves the credit decision to the lender. Non-bank lenders set their own.

Does another business I own count? On a Standard 7(a) there is a second test: coverage must also clear at least 1:1 on a global basis. The SOP's global cash flow analysis assesses the impact on cash flow to and from any affiliate business, so a second company can help or hurt the file.

Can I improve coverage without growing revenue? Yes. Retiring or consolidating an existing payment shrinks the denominator, and a longer term lowers the monthly payment on the same principal. Neither needs an extra sale.

Does checking my options involve a credit pull? No. The readiness tool, the calculator and the advisor do not. A soft check may run when you ask to see real offers, and a lender runs a full review only if you move forward and give permission.