Skip to main content

Looking for Valuant? You are in the right place!

Valuant is now Abrigo, giving you a single source to Manage Risk and Drive Growth

Make yourself at home – we hope you enjoy your new web experience.

Looking for DiCOM? You are in the right place!

DiCOM Software is now part of Abrigo, giving you a single source to Manage Risk and Drive Growth. Make yourself at home – we hope you enjoy your new web experience.

Factors that affect small business credit

October 30, 2012
Read Time: 0 min

Many small private businesses are finding it challenging to access financial resources for growth at a time when lenders are still cautious and facing pressure to avoid risky loans. Many businesses already know this, because they have seen their borrowing requests rejected by a lender. Others may be considering starting a loan application and want to ensure the business is best prepared to receive an approval.

So what should a business that needs to borrow do?

According to the Sageworks probability of default model, there are five financial metrics that a company should be aware of, especially small businesses: 

1. Cash to Assets

2. EBITDA to Assets

3. Debt Service Coverage Ratio

4. Liabilities to Assets

5. Net Income to Sales

Cash to Assets

For small businesses, cash to assets is a key measure of liquidity and one of several coverage ratios that tell creditors about a company’s likelihood of default. Small businesses want to have a strong cash to assets ratio. Cash to Assets also provides an indication of how much flexibility a firm has to deploy cash or to access liquid accounts in order to make good investments, according to Lawrence Litowitz, a partner at strategic advisory firm The SCA Group LLC. Having cash on hand allows businesses to make quick decisions; whereas traditional assets take more time to liquidate. 

EBITDA to Assets

EBITDA (Earnings before interest, taxes, depreciation, and amortization) to Assets is another key figure that helps to build the financial credibility of a firm. Comparing EBITDA to a company’s assets helps show profitability — how much income, or cash, a company can generate from its equipment, property and other assets, according to Litowitz.

Debt Service Coverage Ratio

Debt Service Coverage is EBITDA divided by a firm’s current portion of long-term debt and interest expense. Lenders often have a minimum ratio that’s acceptable, and they will make it a condition or covenant of the loan. “The higher this ratio is, the easier it is to obtain a loan,” according to Nigro. Similar to a homeowner needing a minimum ratio of monthly income to the monthly mortgage payment, lenders seek assurance that a business is at least healthy enough to cover current debt.

Liabilities to Assets 

The Liabilities-Assets ratio, which compares a firm’s total liabilities to its total assets, gives a sense of the equity cushion in a firm’s capital structure. “The greater the ratio of Liabilities to Assets, the smaller that cushion is, and the more likely that if there’s a bump in the road, you’ll go under,” Nigro notes. Small business owners want to have low liabilities to assets. 

Net Income to Sales 

Also known as, the net profit margin, the ratio represents the bottom line, or what’s left after all costs and expenses are subtracted from revenue, as a percentage of sales. The Net Income-Sales ratio, like other metrics, can vary dramatically from industry to industry, so it is most useful for providing insight into a company’s performance relative to industry peers.


To learn more about improving financial metrics and managing credit risk, check out this free whitepaper: Getting Business Credit: Improving the Financial Metrics that Matter

About the Author


Raleigh, N.C.-based Sageworks, a leading provider of lending, credit risk, and portfolio risk software that enables banks and credit unions to efficiently grow and improve the borrower experience, was founded in 1998. Using its platform, Sageworks analyzed over 11.5 million loans, aggregated the corresponding loan data, and created the largest

Full Bio

About Abrigo

Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

Make Big Things Happen.