well in short if you own an established business in an industry that isn't very high risk, the first thing I do is take a look at your P&L / income statement, and calculate EBITDA
Your net income (basically sales - operating expenses)
add back your Depreciation, Interest expenses, and taxes
from there I calculate your fixed charges; the current portion of long term debt (basically what you'll be paying down on loans in the next year), lease expenses, etc, and the debt service for the loan in question.
EBITDA / Fixed Charges = your fixed charge coverage ratio
I generally need your FCCR to be 1.10, 1.25, or something like that depending on your industry [basically i need you to make 1.10 for every $1 in fixed charges including the new loan).
This is the same if you're borrowing $10000, $1,000,000, or $62,000,000 for the most part.
from there I look at the collateral coverage. This is specific to the industry/company and more so the type of loan. Its important to match the type of loan to the type of collateral. For example;
A line of credit is revolving debt, and is for relatively temporary use. So, the collateral is accounts recievable (because it turns into cash within 90 days), or inventory (because it is sold and turned into cash). From your balance sheet, I advance typically 80% of accounts recivable, and 50% of inventory value...So if you have $1,000,000 A/R and 400,000 Inventory, that equates to $1,000,000 of collateral. I like that to be 1:1 for the amount of credit requested.
A term loan (think like an autoloan or mortgage) is for longer term debt, and typically directly tied to specific collateral like a vehicle or equipment. The advance rates on that are very specific to the collateral provided, but probably about 80% (think; 20% down on real estate or a car, etc).
the cash flow (FCCR) requirements are the same usually for term or revolving debt.
And that friends, is commercial lending 201
but:
