Business borrowing affordability calculator

What this calculator does

This tool estimates how much short-term business finance your company can realistically service from its existing cash flow. Lenders rarely ask "how much do you want?" in isolation — they ask whether the repayments leave you with enough breathing room to keep paying staff, suppliers, VAT and rent on time.

You enter your average monthly income (turnover or, better, cash actually received), your regular monthly outgoings and any finance you already repay. The calculator works out your spare monthly cash and shows what a sensible repayment looks like against it. It is designed for UK limited companies considering short-term business loans or a revolving credit facility, where affordability is judged at company level rather than against a director personally.

How to use it

Work from real figures, not optimistic forecasts:

1. Monthly income — use cash genuinely landing in the account each month, averaged over the last three to six months. If your trade is seasonal, use a quieter month so you don't over-borrow.
2. Monthly outgoings — wages, stock, rent, software, fuel, tax set-asides and anything else that recurs.
3. Existing repayments — every current loan, lease, hire-purchase or card balance you service monthly.

The result is your surplus and a suggested affordable repayment. Treat it as a planning figure, then stress-test it: would it still work if your largest customer paid 30 days late?

How to read the result

The headline number is your monthly surplus — income minus outgoings minus existing repayments. A common, cautious rule is to commit no more than 50% of that surplus to a new repayment, leaving the rest as a buffer for the unexpected.

A green, comfortable result means a facility of the size you're considering should sit easily within cash flow. A tight or negative result is a signal to borrow less, extend the term, or fix the underlying cash-flow gap before taking on debt. Borrowing into a deficit rarely ends well — the calculator is there to catch that early, in private, before an application is on record.

The formula in plain English

The logic is deliberately simple:

Surplus = monthly income − monthly outgoings − existing monthly repayments

Suggested affordable repayment = surplus × your chosen safety margin (e.g. 50%)

Lenders express the same idea as a debt service coverage ratio (DSCR): operating cash flow divided by total debt repayments. A DSCR of 1.0 means you can just cover repayments; most lenders want comfortably above that — often 1.25 or more — so there's slack if trade dips. This calculator keeps things in plain pounds, but the underlying test is the same one an underwriter applies.

Worked example

A small manufacturing company receives £42,000 a month in cleared payments. Regular outgoings — wages, materials, rent, software and a VAT set-aside — come to £36,500. It already repays £900 a month on an equipment lease.

Surplus = £42,000 − £36,500 − £900 = £4,600. Applying a 50% safety margin gives a suggested affordable repayment of £2,300 a month. On a typical short-term facility that points to a modest, well-covered loan rather than the maximum on offer — leaving roughly £2,300 of monthly headroom intact for late payers or a quiet month. The numbers here are illustrative; your own figures and any offer depend on assessment.

Limitations to keep in mind

Affordability is a snapshot, and a snapshot can flatter you. The tool doesn't see one-off windfalls, seasonal swings, an overdue tax bill or a customer about to churn. It assumes your stated income is reliable and recurring — if it isn't, build in a wider margin.

It also doesn't price the borrowing: it tells you what you can service, not what it will cost. Pair it with the true cost of borrowing calculator to understand the full price, and the working capital calculator to confirm the underlying gap is genuinely short-term. This is general information to aid planning, not financial advice.