2 min read
Why headroom matters
Lenders test affordability with a cushion for good reason: businesses have bad months. If you borrow right up to what the numbers just about support, one slow quarter, a late-paying customer or an unexpected cost can tip you into a missed payment. Headroom is what turns a manageable loan into a safe one.
How much to leave
There is no single figure, but the principle is that your coverage should survive a realistic downturn, not just the best case. Aim for repayments that a below-average month still covers. The affordability guide shows how to judge a safe level, and the DSCR tool quantifies the cushion.
Stress-testing before you apply
Model the repayment against a pessimistic month, not an average one, using the affordability calculator and a cash-flow forecast. If the pessimistic case still clears, the loan is sized right. If it only works in a good month, borrow less. Discipline here is what keeps you out of the default zone.
Frequently asked questions
Is it bad to borrow the maximum a lender offers?
Often, yes — the maximum leaves little room for a bad month. Just because a lender will advance a figure does not mean it is the safe figure. Borrow to your need with headroom, not to the ceiling.
How do I stress-test a repayment?
Model it against a below-average month rather than your typical one, using a cash-flow forecast and the affordability calculator. If a realistic downturn still covers the payment comfortably, the loan is safely sized.
Related reading
How does a lender check affordability on my application?
Affordability is tested by measuring your cash flow against the proposed repayments — lenders want…
Read →
How does a lender decide how much to offer me?
The offer is driven by affordability against your turnover, profit and existing debt — lenders size the…
Read →Can I change the loan amount during the application?
Yes — you can usually adjust the amount before you accept the offer. A smaller ask is simple; a larger one…
Read →
How to check your company can afford to borrow
Run the lender's affordability test on yourself before you apply. Work out your free cash, check it…
Read on Learn →Cash-flow forecast template
A simple structure for projecting money in and out over the next 12 months.
Read on Tools →Funding for UK limited companies
Credicorp lends to your company, not to you personally — short-term working capital with no personal guarantee. See what your business could access.