How much can my business borrow?

This guide is for business owners and finance directors who want a realistic figure before they speak to a lender. How much your business can borrow depends on what the lender is relying on to be repaid: your profits, your turnover, a property, an asset, your unpaid invoices or your card takings. Each type of finance has its own ceiling, and the lowest relevant test usually sets the offer. Smart Funding Solutions is a broker, not a lender: we search a panel of 300+ lenders and arrange facilities from £10,000 to £20 million.

01The short answer: the lowest test wins

Lenders rarely work from a single multiple. They run several checks and offer the amount that passes all of them. A business with strong turnover but thin profit will be held back by affordability. A profitable business with no assets may be capped by an unsecured lender's turnover limit. A company buying a building may pass the affordability test easily but be limited by loan-to-value. Knowing which test binds for you tells you where to focus.

Type of finance	What sets the limit	How it is usually measured
Unsecured business loan	Affordability and turnover	Profit or cash flow against repayments, plus a cap linked to annual turnover
Secured loan or commercial mortgage	Security value and affordability	Loan-to-value of the property, plus debt service cover
Asset finance	The asset's cost and resale value	Price of the asset less any deposit, with term matched to its life
Invoice finance	Your sales ledger	A percentage of approved, unpaid invoices
Merchant cash advance	Card takings	Average monthly card sales over recent months

02Affordability: can the business service the debt?

Every lender asks whether the business generates enough cash to make the repayments, with room to spare. The most common measure is the debt service coverage ratio (DSCR): the cash available to service debt, usually profit before interest, tax, depreciation and amortisation (EBITDA), divided by total annual loan repayments, including existing borrowing. A ratio of 1.0 means every pound of cash goes on debt, which leaves nothing for a bad month. Lenders often look for cover of around 1.25 times or more, and some want a wider margin for riskier sectors or longer terms.

You can test your own figures with our DSCR calculator, and see what a given loan would cost each month with the business loan calculator. Remember that adding a loan changes the ratio: the new repayments are added to what you already pay on vehicle finance, overdrafts and existing loans.

A hypothetical worked example

Take a company with £1.2 million turnover and EBITDA of £180,000. It already pays £40,000 a year on vehicle finance. If a lender wants cover of 1.25 times, total annual debt repayments can be up to £144,000 (£180,000 divided by 1.25). Take away the existing £40,000 and there is room for about £104,000 a year of new repayments. Over a five-year term at an assumed illustrative rate, that might support a loan of roughly £400,000 on affordability alone. Shorten the term to three years and the same repayment budget supports a much smaller loan. These figures are round and hypothetical; actual rates, terms and criteria vary by lender.

The same company may still not get £400,000 unsecured, because the next test, the turnover cap, may be lower.

03Unsecured borrowing: turnover-based limits

Without security, lenders protect themselves by capping how much they will lend relative to the size of the business. Many set a maximum linked to annual turnover, and the proportion varies by lender, sector and credit profile. Time trading matters too: a business with two or three years of filed accounts can usually borrow more than one with a single year. Personal guarantees from directors are standard on most unsecured lending.

In the example above, a lender capping unsecured lending at a modest share of the £1.2 million turnover might offer considerably less than the £400,000 affordability allows. That is often the point where adding security, or combining products, increases the total available. Our guide to secured vs unsecured business loans sets out the trade-offs.

The same company may still not get £400,000 unsecured, because the next test, the turnover cap, may be lower.

04Secured borrowing: loan-to-value

When a loan is secured on property, the lender compares the loan with the property's value. Owner-occupied commercial premises are often funded at up to around 70 to 75% of value, with lower limits for investment property and specialist buildings, and residential property used as additional security has its own limits. Second charges, where another lender already holds a first charge, typically allow less again because the second lender is paid only after the first.

Loan-to-value is a ceiling, not an entitlement. A commercial mortgage lender still runs the affordability test, and if profits support repayments on a smaller loan, that is what it will offer.

05Asset finance: the value of the asset

With hire purchase and leasing, the asset is the main security, so the limit is tied to what you are buying. Lenders commonly fund most or all of the price of new, readily resold equipment and vehicles, sometimes with a deposit, while used, older or highly specialised kit may need a larger deposit and a shorter term. Because the asset carries much of the risk, businesses can often raise more through asset finance than they could unsecured. Our asset finance page explains the routes.

£50,000A transaction we arrangedHistoric loss. Improving numbers. £50K secured for dental growth.Several lenders focused on the previous year's numbers. We focused on what had changed.

06Invoice finance: the size of your debtor book

Invoice finance lends against money your customers owe you. The provider advances a percentage of approved invoices, often up to around 80 to 90% for strong debtors, and the facility grows as your sales grow. What reduces the available amount is concentration (one customer making up much of the ledger), slow-paying or disputed accounts, and invoices that are not yet fully earned, such as stage payments. A business invoicing £150,000 a month with 60-day terms has roughly £300,000 outstanding at any one time, and the facility is sized against what is eligible within that. Our invoice finance hub explains how lenders decide which invoices count.

07Merchant cash advance: your card takings

A merchant cash advance is repaid as a percentage of future card sales, so the amount offered is usually linked to average monthly card takings over recent months, often in the region of one month's takings, sometimes more for consistent trading histories. It suits retailers and hospitality businesses with strong card volumes but limited assets. Our merchant cash advance page covers the costs and how repayment works.

08What else changes the figure?

• Credit history. Business and personal records, including any CCJs or missed payments, affect both whether a lender agrees and how much.
• Existing debt. Every current repayment reduces the room for new ones.
• Trading history and trend. Rising profits and up-to-date management accounts support a higher figure than a declining set of year-end accounts.
• Purpose. Lenders are more comfortable funding something that generates income, such as a contract, an asset or an acquisition with a clear plan.
• Term. A longer term lowers each repayment and lets the same cash flow support a bigger loan, at a higher total cost.

Our guide to how lenders assess business loan applications explains each factor in more depth. For a general overview of non-bank options, the British Business Bank's guide to asset-based lending is a useful independent reference.

09How to estimate your own borrowing capacity

1. Start with cash, not turnover. Take EBITDA from your latest accounts, adjusted for one-off costs, and compare it with management accounts for the current year.
2. List every existing repayment. Loans, hire purchase, leases, overdraft interest and any HMRC payment plan all count.
3. Apply a cover margin. Divide your cash figure by 1.25 or more to find a prudent annual repayment budget, then subtract existing repayments.
4. Convert the budget into a loan. Use a repayment calculator to see what that annual figure supports over a realistic term.
5. Check the other ceilings. Property value, asset prices, eligible invoices or card takings may cap the figure below what affordability allows.

The result is an estimate, not an offer, but it stops you applying for an amount no lender will agree and helps you decide whether security or a different product is worth considering.

10Combining facilities to reach the figure you need

When one product falls short, the answer is often a combination: a secured term loan against property, invoice finance for working capital, and asset finance for equipment, each sized on its own test. Lenders look at total debt across all of them, so a combined structure has to pass the overall affordability check too. If you are looking at a specific amount, our pages on a £100,000 business loan, £250,000 business loan, £500,000 business loan and £1 million business loan explain what lenders typically expect at each level. When you send us your figures, we will tell you which test is likely to limit you and which lenders on our panel suit your profile.