How do I know if I can afford a business loan?

2 min read

SurplusIncome minus all costs

BufferRoom for a quiet month

Test itUse the affordability calculator

The simple affordability test

Affordability comes down to one question: after the business has paid everything it already has to pay, is there enough left to cover the new repayment without strain? Start with your average monthly surplus — revenue in, minus every cost out — then place the proposed repayment against it. A repayment that takes a comfortable slice and leaves a clear margin is affordable; one that consumes nearly all the surplus is not. The affordability calculator works this out for you.

Build in a buffer for the bad months

Few businesses earn the same surplus every month, so testing against your best month is a trap. Use a typical or slightly conservative month, and check the repayment would still be manageable if revenue dipped. A useful habit is to keep a cash buffer so a single slow period does not put a repayment at risk. If your income is seasonal, model the lean part of the year, not the peak — the seasonal cash buffer calculator helps.

What this means for your company

If the repayment sits comfortably inside a normal month's surplus and survives a quieter one, the borrowing is affordable and likely to be sustainable. Credicorp assesses the same thing from the other side, sizing lending to the company's trading and cash flow with no personal guarantee — so doing your own test first tends to line up with how the application is judged. For working out a sensible repayment figure, see what monthly repayment your business can afford.

Frequently asked questions

What surplus is safe to commit to a repayment?

There is no single rule, but committing only a portion of your surplus — and keeping a clear margin for a quiet month — is far safer than stretching to the limit. If a repayment would need almost all of your surplus, it is a sign to borrow less or over a longer term.

Should I test against profit or cash flow?

Cash flow, because repayments are made from money in the account, not from accounting profit. A profitable business can still be short of cash if customers pay late, so always test the repayment against the real surplus moving through the bank.