How do I work out if a loan will pay for itself?

2 min read

Return > costThe test

Be conservativeOn the upside

Total repayableThe true cost

How to test it

Estimate the additional profit the borrowing will create — extra sales from new stock, savings from new equipment, margin from a bigger order. Compare that against the total repayable, not just the rate. The return-on-borrowing calculator does the comparison; a payback-period calculator tells you how long until you recoup it.

What this means for your company

Be conservative on the upside and honest about timing — a return that only appears if everything goes perfectly is not a safe basis to borrow. Check the repayment also fits your cash flow in the months before the return lands. If the numbers only just work, borrow less or wait. If the return clearly beats the cost with room to spare, it is a sound investment.

What it means for you

Credicorp lends to your company, not to you personally, and takes no personal guarantee. See business loans or apply online.

Frequently asked questions

What return should a loan generate to be worth it?

Enough to exceed the total cost of borrowing with a comfortable margin for error. A return that only just covers the cost leaves no room if things underperform. Look for a clear, not marginal, gain.

What if the return is uncertain?

Then borrow cautiously or not at all. Use conservative estimates, and if the loan only pays off under optimistic assumptions, treat that as a warning. Uncertain returns and fixed repayments are a risky mix.