Whatever a loan enables should improve your business and increase your profits.
A loan might help you increase productivity, lower your costs, or grow your sales. If it doesn’t do one of those things, then debt likely isn’t the answer — at least not right now.
For example, if you’re thinking of using a loan to bail yourself out of a difficult situation, that’s a red flag. As is not having a clear sense of how a loan will enable your business to succeed.
Do you have a simple and persuasive explanation for how a loan will improve your business?
- Yes. Congratulations! This is an all-important step in getting ready to apply for a loan.
- No. We recommend you don’t apply for a loan right now and instead work on your business plan and determine how a loan fits into that plan.
How much can you afford to borrow?
The industry standard measure of this is your debt-service coverage ratio (DSCR). You can calculate your DSCR by dividing your cash flow (the net profit, plus any interest, depreciation, or amortization expenses) by your debt payments.
Don’t worry if you don’t have exact figures. Play around with the DSCR calculator at right to get a rough idea of how large a loan you can afford.| Cash flow | |
| Calculate your DSCR | |
| Total debt payments |
Your DSCR can tell you how much debt your business can afford.
Let’s say you need a $15,000 automatic pasta machine to really take your lasagna business to the next level. A quick DSCR calculation, however, shows you can only afford a $10,000 loan.
In this case, presuming you have no way to cover the $5,000 shortfall, taking out a loan that only covers 2/3rds of the project cost is likely a bad idea.
Banks and credit unions will typically look at previous performance to see if that history will let you service the debt you’re considering taking on. They often require a DSCR of 1.25 or greater.
Szyk, B. and Pál, T. "Debt Service Coverage Ratio Calculator (DSCR)".
Available at https://www.omnicalculator.com/finance/dscr.
NOTE: The interest rate provided above is for illustrative purposes only and may not reflect the actual rate we offer. We suggest using 9.5% for this calculator. For more information, please visit our Business Loan pages to explore our rates and terms.
At Craft3, we look at historic DSCR, but we also consider projections if your historic DSCR isn’t high enough to support the loan.
At Craft3, we’re here to connect you with capital—but more importantly, we’re here to help you make smart, informed decisions for your business. That means we’ll never encourage you to take on debt that isn’t aligned with your goals or financial reality.
Before you apply for a loan, take a step back and ask:
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How will this loan help my business grow or operate more effectively?
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Will it increase revenue, reduce costs, or unlock a new opportunity?
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Can I realistically repay this loan based on my current and projected cash flow?
You should only borrow what you can afford to repay—without putting your business at risk. A responsible lender (like Craft3) will work with you to think through these questions. We want to help you explore whether financing is truly the right next step, or whether there are other ways to move forward until the timing is better.
Remember: the right loan, at the right time, for the right reason can be a powerful tool. But it's just one piece of a long-term business strategy. We're here to help you figure out when it makes sense—and when it doesn’t.
Press Play: Is Debt Financing Right for Your Business?
Understanding the implications of debt financing can be overwhelming. This webinar will tell you what should know before borrowing money, how to figure out the right amount to borrow, and more.
Tools and Resources to Help You Get Loan Ready
Thanks for spending time with this resource — and congratulations on taking a meaningful step toward strengthening your business.
This guide is just one piece of the support we offer small business owners. If you're looking for a deeper dive into preparing for financing, check out our comprehensive Definitive Guide to Getting Loan Ready page.
Start with the Basics
- Glossary of Finance and Business Terms Make sense of unfamiliar financial language. You don’t need to talk like a banker — but understanding their terms and mindset can help you communicate more effectively and make smarter decisions.
- Determine if a Loan Can Help Your Business Succeed one-pager A printable summary of what you’ve learned here — perfect as a prep checklist or to share with a business partner.
- Definitive Guide to Getting Loan Ready e-book in English or Spanish Our comprehensive guide walks you through everything you need to know to confidently prepare for business financing — from strengthening your financials to telling your business story with impact.
- Subscribe for Business Tips Get practical, actionable advice delivered to your inbox — covering everything from business plans to getting documents together.
When You’re Ready, We’re Here to Help
At Craft3, we specialize in working with entrepreneurs who may not fit the traditional mold — and we believe in second chances and fresh starts.
Take the Next Step
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Explore Craft3’s Business Loan Options Learn how we support small business owners through accessible, flexible financing.
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Submit a Loan Inquiry You can start the loan process by completing our online form. A lender will then follow up with you to schedule a conversation.
About Craft3
Craft3 is nonprofit community lender focused on building a thriving, just, and empowered Pacific Northwest. We support entrepreneurs — especially those that have been denied access to opportunity — by offering responsible capital and tools, like this guide, to support you on your business journey.