When it comes to refinancing your commercial loan, understanding some basic financing terms can make things a lot easier. From cash flow to Debt Service Coverage Ration (DSCR), here are five terms you need to know.
Cash Flow
This term refers to the amount of money moving in and out of your business. Cash comes in when a customer pays you and then goes out when you pay bills or buy supplies. Having a positive cash flow means having more cash coming in than it goes out. This is extremely important to keep your business in good financial shape. Improving cash flow is one of the main reasons why business owners refinance their commercial loans.
Consolidation
Consolidating your debt means combining all your business loans into one. This way, you make only one payment instead of many, saving yourself a lot of stress. Plus, you may get a lower interest rate, which helps you save money and strengthens your cash flow (see above).
Closing Costs
Closing costs are the fees you pay when you secure a loan. Remember that when you refinance a loan you are basically taking out a new loan, so refinance deals may also have closing costs. Closing costs may vary depending on the size of your loan. This is one of the aspects you should make sure to understand before jumping into a refinance. If you have questions, remember that you can chat with the experts at Gellyfish Commercial through the live chat on our home page.
Debt-to-Income Ratio (DTI)
This term refers to the percentage of your income that goes toward making debt payments. Lenders use DTI as a metric to gauge your ability to repay a loan. To calculate your DTI, add up your monthly debt payments and divide the total by your gross monthly income.
Debt-Service-Coverage Ratio (DSCR)
This is a measure of a company’s cash flow (see above) that’s available to service debt. In other words, DSCR is an indicator of a company’s ability to meet its minimum principal and interest payments. To calculate your company’s DSCR, take the annual net income and add back interest expenses and non-cash expenses such as amortization and depreciation. The total is called EBIDA (Earnings Before Interest, Depreciation, and Amortization). To find your DSCR, divide your EBIDA by the annual debt service of the loan you want to take out.
Gellyfish: Certainty of Execution in Commercial Loans
Looking to refinance your commercial loan? At Gellyfish Commercial, we offer financing solutions with the certainty of execution you need to take your business to the next level.
We are located in Riverside, California, and work with clients everywhere. Contact us today by email (info@gellyfishcommercial.com), telephone (877-800-4493), social media (Facebook, Twitter, LinkedIn), or through the live chat on our home page to schedule a free consultation.
