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Earnings Requirements

What Are Earnings Requirements?

Financial obligations are paid with cash, not 'on paper' profits. When cash outflow exceeds cash inflow for an extended period of time, a business cannot continue to operate. This means that cash management within your business is extremely important. In order to adequately support your company's operation, cash must be at the right place, at the right time and in the right amount.

Making Timely Debt Payments

A company must be able to meet all its debt payments (not just its loan payments) as they come due. All SBA loans require that the borrower be able to reasonably demonstrate their ability to repay the intended obligation from their business operation. The lender will consider the cash flow from the business, the timing of the repayment, and the probability of successful repayment of the loan before making funds available. Payment history on existing credit relationships (personal and commercial) is considered an indicator of future payment performance, so endeavor to pay all of your bills and other debts on time to show the lender that you are dependable. Lenders will also want to know about any contingent sources of repayment (ways you can pay your debt if your business fails).

Preparing a Cash Flow Projection Report

Applicants are generally required to provide a report detailing when their income will become cash and when their expenses must be paid. This report is usually in the form of a cash flow projection, broken down on a monthly basis and covering the first annual period after the loan is received.  A critical factor in loan approval is making sure the lender understands how these revenues will be generated.  This is especially true when the projections are for a new business or an expanding business with anticipated revenues and expenses exceeding past performance by a significant amount (20 percent or greater).

If you can show your lender a clear business plan that provides for all debt payments concerning the business to be paid on time, your application has a better chance of being approved. If you have savings or assets set back to cover the possibility of future income from the business falling short of your projections, this will also help your case.

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