What is Personal Debt Usage and Why is it Important for a Business Owner?

Generally, small business lenders want to know the answers to a couple of important questions to learn more about your business.

  • Can you repay a loan?
  • Will you repay a loan?
  • Will you make each and every payment even if something unexpected happens?

Lenders review a number of important ratios to determine if the answer is “yes”.

One of the ratios considered is personal debt usage.


What is personal debt usage? | SmartBiz Advisor

Read on for more in-depth information about this ratio. You’ll also learn about how SmartBiz Advisor can help increase your likelihood of approval when applying for the low-cost funding you deserve.


What is Personal Debt Usage?

Personal debt usage compares the total personal debt you owe to the total limits on your credit accounts. It’s an important indicator of personal liquidity in case of unexpected expenses. Banks want to know that a possible interruption in cash flow won’t keep you from making regular payments in full.


What is Personal Debt?

Personal debt results from purchasing goods that are consumable and/or don’t appreciate. High amounts of personal debt can strain your income, making it difficult to make regular payments of all debts and bills.


What is the Personal Debt Usage Ratio?

Personal debt usage is calculated by taking the sum of all outstanding balances on your revolving credit accounts and dividing it by the sum of the credit limits on those accounts. Accounts exclude home equity lines of credit or installment debts like car loans.


What is Your Goal?

If you’re seeking low-cost funds, like an SBA loan, banks typically want the business owner’s personal debt usage to be less than 30%.


How Can You Improve Your Personal Debt Usage Ratio?

Here are things you can do right now to start improving your personal debt usage ratio.

  • Check your balances at least 1x week so you always know where you stand.
  • Make small payments during the month instead of sending one big payment on the due date.
  • Consider asking your card issuer to raise your credit limit, but only if you won’t be tempted overspend. Jumping to a higher limit will instantly lower your utilization ratio.
  • Keep in mind that per-card utilization counts. Retail stores and others offer credit cards as a financing option. However, these cards tend to have low limits. This can cause your utilization to soar and your score may suffer.


How Does Your Personal Debt Usage Ratio Affect a Business Loan Application?

Assessing the health of your business before you start a small business loan application is key.  The better financial shape you’re in, the better your chances of securing low-cost funds. An SBA loan with low-rates, long-terms and low monthly payments is your best bet and SmartBiz Loans wants to help you qualify. 

We’ve created SmartBiz Advisor™* an online, educational tool to help you learn how you can get your business SBA or bank loan ready before you apply. We’ve identified 7 key metrics, including personal debt usage, that lenders consider. Simply enter a bit of information and you’ll discover your unique Loan Ready Score™ in under a minute. If you aren’t where you need to be to qualify for an SBA loan, SmartBiz Advisor offers actionable advice to help you improve your numbers.

To assess where you stand on the key criteria banks consider, visit the SmartBiz Advisor website and hit the green “Get Started” button. We wish you and your business the best of luck!

*What you need to know: The information provided through SmartBiz Advisor, including the Loan Ready Score, is for educational purposes only. SmartBiz Advisor is not a financial or legal advisor as defined under federal or state law. Use of this information is not a replacement for personal, professional advice or assistance regarding your finances or credit history.