What monthly repayment can my business afford?

2 min read

Free cash flowSurplus after every cost

A shareNot the whole surplus

Work backwardsRepayment first, then size

Start from free cash flow

Free cash flow is what is left after the business has paid everything it needs to operate — suppliers, wages, rent, tax set-aside, existing commitments. That surplus is the only place a repayment can sustainably come from. Work out a typical month's free cash flow from recent bank statements, then treat that as the pool a repayment draws on. Profit on paper is not the measure; money actually in the account is. The repayment calculator turns a target repayment into a loan size and term.

A safe repayment uses part of your free cash flow and leaves the rest as breathing room. Committing the entire surplus removes any margin for a slow week, a late-paying customer or an unexpected cost, which is how affordable borrowing turns into strain. Decide the share you are comfortable giving up each month before you look at loan sizes, and hold to it. If income is seasonal, base that share on a lean month — see can I get finance for a seasonal business.

Work backwards to the loan

Once you have a repayment you can sustain, work backwards to find the loan size and term that produce it, rather than starting from the largest amount on offer. A longer term lowers each instalment but raises the total cost, so balance the two with the true cost of borrowing calculator. Credicorp sizes lending to what the company can comfortably support from its trading, with no personal guarantee — so an honest repayment figure is the right place to begin. For the broader affordability test, see how to know if you can afford a business loan.

Frequently asked questions

Does a longer term mean a more affordable repayment?

Yes for the monthly figure — spreading a loan over more months lowers each instalment — but it usually increases the total interest paid over the life of the loan. Use the repayment and true-cost calculators together to balance a comfortable monthly figure against the overall cost.

Should existing loan repayments come out of the surplus first?

Yes. Any repayment you already make reduces the free cash flow available for a new one. Always calculate your sustainable repayment from the surplus that remains after existing commitments, not before them.