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Financial Empowerment

Key Ratios Lenders Care About

Can a business client repay a loan on time? This is an important question to small business lenders.

While no one can predict the future with 100% accuracy, lenders rely on a few simple arithmetic ratios to make credit decisions. These metrics of financial performance measure a company’s ability to pay short-term and long-term obligations:

Current ratio = current assets / current liabilities

Quick ratio = (cash + accounts receivable) / current liabilities or

Quick ratio = (current assets – inventory) / current liabilities

Debt ratio = total liabilities / total assets

Long-term debt ratio = long-term debt / total assets

The Basics of Asset-based Loans Liquidity and Liquidity Events
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