What is EBITDA? A brief guide for small businesses
Banks use the EBITDA method to assess whether your business is able to pay off its debts.
If you approach a bank for a business loan or another form of finance, it will likely use EBITDA to determine whether your business is able to repay its debts.
This method of measuring a company first became popular in the 1980s, at the height of the leveraged buyout era.
Then, it was common for investors to financially restructure distressed companies (those that were unable to meet their financial obligations). It was used mainly as a yardstick of whether a business could afford to pay back the interest associated with restructuring.
Read on to learn more about EBITDA in the modern day – what it is, how it’s calculated and what it might mean for your business.
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