How much can my business borrow? Banks answer that question by working backwards from your cash flow. They decide the most they will let you pay in loan instalments each year, then turn that payment into a loan amount using their rate and term. This calculator follows the same method.
Estimates only. Lenders use their own methods, rates and fees. Results update as you type; nothing you enter leaves your browser.
How lenders size a business loan
- Step 1: cash available for debt. EBITDA minus tax and the capital spending needed to keep the business running.
- Step 2: apply the coverage target. Divide by the minimum DSCR, often 1.25x. The result is the most you can pay on all loans in a year.
- Step 3: deduct existing debt. What remains is the room for new loan payments.
- Step 4: convert to a loan amount. The affordable monthly payment is turned into a principal amount using the interest rate and term.
Worked example
A manufacturer has EBITDA of $240,000, pays $30,000 of tax and needs $10,000 of essential capex, so $200,000 is available for debt. At a 1.25x target, total loan payments can be up to $160,000 a year. Existing loans take $36,000, leaving $124,000 a year, or about $10,333 a month. At 11% over 5 years, that payment supports a loan of about $475,000.
Why the bank may offer less
Cash flow sets the ceiling, but other tests can bring the number down. The lender may cap the loan at a percentage of your collateral value (see the LTV calculator), limit total debt to a multiple of EBITDA (commonly 2.5x to 4x for SMEs), or reduce the amount if your accounts are old or your credit history is weak. Read why banks decline business loans before you apply.
Frequently asked questions
What DSCR should I enter?
1.25x is a sensible starting point. Use 1.20x for strong, stable businesses and 1.35x to 1.50x for cyclical sectors, start-ups or property-backed loans.
Should I include owners’ salaries?
If owners take money out as drawings or dividends rather than salary, many banks deduct a reasonable amount for it before measuring cash available for debt. Reduce EBITDA accordingly for a realistic estimate.
Can I borrow more with a longer term?
Yes. A longer term lowers the annual payment on each dollar borrowed, so the same payment supports a larger loan. Lenders usually limit the term to the useful life of the asset being financed.
Next, price the loan with the business loan calculator and check your ratio with the DSCR calculator.
These figures are estimates for planning. They are not financial advice or an offer of credit. See our disclaimer.