SBA Max Lender Loan Calculator

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Entrepreneurs frequently seek SBA loans to start or expand their businesses. However, they often request more funds than their cash flow can support. To address this, the SBA Max Lender Loan Calculator helps you determine the maximum loan amount most SBA lenders would consider financing. For ease of understanding, we provide an abbreviated calculator and also an extensive calculator for those interested in more in-depth information.

 

Max Lender Loan Calculator (short version)

YOUR DATA IN THIS COLUMN


Based on 10% rate, 10-year term, and DSCR of 1.2, which are standard market conditions. To change any of these three variables, use the long vresion below.

 

Max Lender Loan Calculator (long version)

YOUR DATA IN THIS COLUMN



Below are the standard SBA terms for most borrowers, which are set as the default but may be modified.


Loan Term Selected: 10
SBA loans are typically 10 years or 25 years for real estate
Interest Rate Selected: 10
SBA interest rates are typically prime + 2%, which is currently around 10%
DSCR Selected: 120
Lenders want to see the business generating profits of 115% to 125% over the annual loan payments

OUR CALCULATIONS IN THIS COLUMN


If negative: Amount to reduce your loan request by. If positive: Loan request is less than max loan availability.

 

Definitions of Key Loan Calculator Terms

Requested Loan Amount

This is the desired amount for your SBA loan.

 

Annual Profits (EBITDA)

Business profits as defined by EBITDA (explainer here). EBITDA stands for earnings before interest, taxes, depreciation, and amortization. For most businesses, EBITDA is derived by taking the taxable net income from your business tax return and adding back interest, taxes, depreciation, and amortization.

 

SBA Loan Term

The majority of SBA loans come with a 10-year repayment period. However, for SBA loans specifically used for real estate purposes, the term extends to 25 years. In cases where the loan combines both real estate and other business uses, known as a blended term, the loan duration can range between 10 and 25 years. While borrowers have the option to choose shorter terms than the maximum 10 or 25 years, many prefer to go for the longest available term and simply repay the loan earlier if they wish.

 

SBA Interest Rate

Interest rates for SBA loans fluctuate based on the prime rate determined by the Federal Reserve Bank. Typically, SBA lenders add a 2% markup to the prime rate. For example, if a banker quotes “prime plus 2%,” and the prime rate is 7% at the time the loan is issued, the interest rate for the SBA loan would be 9%.

For a more comprehensive understanding, we delve into both historical and current SBA loan rates in a detailed analysis provided here.

 

Required Debt Service Coverage Ratio (DSCR)

SBA lenders won’t seal the deal on a loan if the business’s entire cash flow is earmarked for repaying the SBA loan. They prefer to see the business’s cash flow, indicated by EBITDA, outpace the loan repayments (also known as “debt service”) by 15% to 25%. This surplus is often expressed as a Debt Service Coverage Ratio (DSCR), typically expected to be between 115% and 125%. Several factors influence a lender’s DSCR requirement:

  1. The lender’s prior experience and track record in your industry.
  2. Your direct experience, business accomplishments, and financial stability.
  3. The business’s financial performance and the consistency of its earnings.
  4. The amount of equity you’re putting into the business – the more, the merrier.
  5. The overall business environment.

Keep in mind, the SBA’s baseline DSCR is 115%, so no SBA lender will approve a loan falling below this threshold.

 

Maximum Loan Amount

This represents the highest loan amount an SBA lender will offer, taking into account several key factors, prioritized as follows:

  1. Annual Profits
  2. Length of the SBA Loan Term
  3. SBA Loan Interest Rate
  4. Debt Service Coverage Ratio (DSCR)

It’s crucial to understand that while our SBA Max Loan calculator might indicate a potential loan amount exceeding $5M based on the data you input, this figure represents the overall loan capacity. For borrowers whose loan capacity surpasses the SBA’s $5M cap, alternatives like a mix of an SBA loan and a conventional loan, a USDA Business and Industry loan, or other financial sources could be explored.

Maximum Loan Minus Requested Loan Calculation

This formula calculates the gap between the highest possible SBA loan amount, based on your input data, and the amount you’re looking to borrow. A positive result implies that lenders would probably be at ease with your request, considering your financial capacity. Conversely, a negative value suggests that the loan you desire is more than what SBA lenders might approve given your business’s earnings and other relevant factors.

For instance, if you request a loan of $1,000,000 with an EBITDA of $150,000, this means you’re requesting $212,500 beyond your lending capacity, as the maximum feasible loan would be $787,500. In contrast, with a $1,000,000 loan request and $250,000 in EBITDA, you have an additional lending capacity of $312,500, making the maximum comfortable loan amount for most lenders $1,312,500.

Approximate Required Annual Profits (EBITDA)

This refers to the necessary cash flow, quantified in EBITDA, needed to support the Requested Loan Amount. It’s important to note that this amount is greater than the Annual Loan Payment. As previously mentioned, an SBA lender expects your cash flow to be at least 115% higher than your loan payments.

 

Annual Loan Payment

This is calculated as the monthly loan payment multiplied by twelve. In our earlier example of a $1,000,000 loan with an EBITDA of $250,000, the Annual Loan Payment comes to $158,580. This is comfortably lower than both the Required Annual Profits of $190,297 and the actual Annual Profit of $250,000, which is a scenario banks favor due to the strong cash flow.

 

Monthly Loan Payment

The monthly payment is determined based on an amortization schedule that factors in the Requested Loan Amount, the Loan Term, and the SBA Interest Rate. Revisiting our example, for a $1,000,000 loan with an EBITDA of $250,000, the Monthly Loan Payment would be $13,215.

 

Actual Debt Service Coverage Ratio (DSCR)

This is calculated by dividing the Actual Profit by the Annual Loan Payments. Using our example with $250,000 in Annual Profits and $158,580 in Annual Loan Payments, the DSCR is a robust 158%, which is considered very healthy. Generally, a DSCR above 125% is seen as strong.

 

Maximum Loan to Annual Profits (EBITDA) Multiple

This ratio quickly summarizes the multiple a lender might use when determining the maximum loan capacity. In the provided example, a multiple of 5.2x suggests that a borrower with $250,000 in profits could expect a loan capacity of $1,300,000 ($250,000 multiplied by 5.2). Note: The calculator may show a slightly higher figure due to rounding.

 

As of the time of this writing, the inputs used were:

– SBA Term: 10 years

– Interest Rate: 10%

– DSCR: 120%

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