Welcome to Pathway, where your business journey to capital and growth is our priority! Just like a seasoned hiker explores new trails, we're here to guide you through the twists and turns of our loan application process. Wondering why some loan applications are declined? Let's break down the most common detour: Debt-to-Income Ratio (DTI)—applicants with too much debt.
🧭 What is Debt-to-Income (DTI)?
DTI is like a compass on your financial journey. It's the ratio of your debt payments to your income. Anything that shows up on your personal credit report as a monthly obligation will go into the debt calculation. This includes things like a car payment, credit cards, student loans, personal loans, and a mortgage (we also consider a rent payment if you are leasing). Being aware of and maintaining a healthy DTI is important. It's all about finding balance between available resources and new opportunities.
Example: if your monthly debt payments sum $1,000, and your monthly income is $10,000—that is 1,000/10,000—your DTI is 10%.
🚀 Why DTI Matters?
Just as you'd gear up for an expedition, we want to ensure your business has a strong foundation before embarking on new ventures. DTI matters because it reflects your ability to handle added financial commitments. If your current financial obligations are taking up a big chunk of your income, taking on more debt might lead to a steep uphill battle.
🚫 Common Reason for Application Detours
When applications take an unexpected turn, and get declined, a high DTI is the most common reason. If your existing debts—like lease payments, other loans, and credit card payments—claim a big slice of your earnings, it might signal a challenge in managing new capital paths.
👍 👎 What's a Good DTI?
There is not a black-and-white answer. Pathway, like other CDFI's, exists to help businesses grow. That means we take on risk! However, there is a balance. We want to mitigate, not just our own risk, but your risk. Think of DTI as a range of risk:
Low Risk | Some Risk | Moderate Risk | High Risk |
Less than 20% | 20 - 35% | 35 - 50% | Greater than 50% |
There is not a hard-and-fast rule that says you will or will not be approved at a certain level. Approvals and declinations are multifaceted and DTI is just one area we look at. Generally speaking, you're lookin' good in the green. We have and will lend in the yellow, but we want to see you in the green!
🌱 Why DTI is Vital to Us
At Pathway, we're more than just a lender—we're your expedition leaders. With a focus on community development, we see your loan application as part of a bigger picture. A high DTI equals high risk for us. Rather than put us both at risk, we want to coach you through and provide you with resources to strengthen your business—and, improve your DTI. A declination is an opportunity to work with us towards a future approval. We're invested in your success and the growth of the communities we serve.
🗺️ Navigating Around DTI Challenges
If DTI seems to be leading your application off-track, don't worry! Just like skilled explorers find new routes, our experienced team can help you navigate obstacles. We might adjust the loan term or amount to align with your financial capacity. We might connect you with our educational resources. Our goal? To find the right path for you.
🌟 Charting Your Course with Confidence
While DTI might cause a detour, remember—it's all part of the adventure. At Pathway, we're your allies on this growth journey, ensuring you're ready for success. Our aim isn't just lending; it's building pathways to prosperity for you and your community.
So lace up those boots and keep your compass steady. Together, we'll explore new opportunities, conquer challenges, and create a pathway to success for your small business. Let's keep moving forward, one step at a time!🚶♂️🌿