How much can my business borrow?

It is the first question almost every business owner asks, and the honest answer is: it depends on what the lender can see. There is no single formula used by every lender. But most lenders start from the same handful of facts, and once you know them you can make a sensible estimate before you apply.

This guide explains the rules of thumb we use in our own lending model, why the length of the loan matters so much, and what pushes the figure up or down.

Turnover is the starting point

For most unsecured business lending, annual turnover is the anchor. Lenders want to see that the business brings in enough money to cover repayments comfortably, alongside everything else it has to pay.

As a broad guide, we work from these ranges:

• Short-term lending (up to 12 months): up to about 10% of annual turnover.
• Mid-term lending (one to three years): roughly 12.5% to 17.5% of annual turnover.
• Long-term lending (three to six years): roughly 20% to 25% of annual turnover.

So a company turning over £500,000 a year might be looking at up to around £50,000 over 12 months, or somewhere in the region of £100,000 to £125,000 over three to six years. These are starting points, not promises. Individual lenders set their own limits.

Most lenders also want a minimum level of turnover before they will look at a case at all. Many of the lenders we work with need at least £100,000 a year, and almost none will lend more than a year's turnover.

Why the term changes the amount

A longer term spreads repayments over more months, so each repayment is smaller. That means a lender can often offer a larger total amount over five years than over one year, while the monthly cost stays manageable.

The trade-off is cost. Borrowing for longer usually means paying more interest in total, even if the rate looks similar. A shorter term costs less overall but needs higher monthly repayments. You can try different combinations on our business loan calculator on the home page to see how the monthly figure changes.

Affordability: the monthly repayment test

Lenders do not just look at the total. They check whether the monthly repayment fits the business. A common rule of thumb is that total monthly repayments should not exceed about 15% of average monthly turnover (annual turnover divided by 12).

For a business turning over £240,000 a year, average monthly turnover is £20,000. Fifteen per cent of that is £3,000 a month. If your existing loans already take £1,500 a month, there is less room for anything new.

This is why two businesses with the same turnover can be offered very different amounts.

Profitability and company age

Turnover tells a lender how much comes in. Profit tells them how much is left. Most lenders will look at your latest filed accounts and, if they are more than a few months old, ask for more recent management figures.

In our model:

• A profitable business is usually positioned towards the top of the range.
• A business that broke even sits around the middle.
• A loss-making business sits towards the bottom, and longer terms may be limited.

Company age matters too. Many lenders want at least two years of trading for longer terms, and some will only offer short-term lending to businesses under a year old. Bear in mind that the date a company was incorporated is not always the date it started trading; lenders will usually check bank statements to confirm real trading activity.

Existing debt and charges

If a lender already holds a debenture or other charge over your company, registered at Companies House, a new lender may offer less, want to rank behind the existing lender, or decline. Where you are refinancing that existing debt, the picture changes, because the new facility replaces it.

Overdue accounts or confirmation statements are also a red flag for many lenders. They are usually fixable, and it is worth getting them up to date before you apply.

What your bank statements add

Declared turnover is a starting point. Bank statements show what actually happens: how much money comes in each month, how much stays in the account, and whether payments are returned. Many lenders base their final figure on statement credits rather than the turnover you tell them.

If you share your statements during our quote, our lending model recalculates affordability using the real figures. You can read more in our guide to what lenders look for in your bank statements.

Other products can add to the total

A term loan is not the only option. If you invoice other businesses, invoice finance can release cash tied up in unpaid invoices. If you take card payments, revenue-based finance can be sized on your card takings. These sit alongside, or instead of, a loan, and are assessed differently.

Getting a realistic figure

The quickest way to get a figure that reflects your own business is to run a quote. It takes a couple of minutes, there is no obligation, and you will see an indicative amount straight away. All figures are indicative only and subject to lender assessment and approval.