Use a rate from a lender you're actually looking at, or a mid-range estimate like 9–12% APR if you're just exploring — the ceiling below moves with whatever rate you enter.
This is a rule-of-thumb model, not a lending decision. Real lenders also weigh your credit history, time trading, sector risk, and how consistent your revenue is month to month — a business with volatile income will often be offered less than this figure even with identical averages. Treat it as a sense check before you apply, not a number to quote to a lender.
Most "how much can I borrow" calculators just multiply revenue by a flat number, which says very little about what a business could actually repay. This tool instead uses monthly net profit and existing debt commitments to work out a realistic affordable monthly repayment, then converts that into a loan amount using the same amortisation maths a lender applies at your chosen rate and term.
The 1.25× debt service coverage ratio used here is a widely applied conservative benchmark, not a universal rule — some lenders are stricter, some more flexible depending on sector and trading history. Treat this as a realistic starting estimate, then compare it against what individual lenders actually offer.
It's the ratio of your net profit to your total debt repayments. A DSCR of 1.25 means profit needs to be 1.25 times total monthly repayments — existing plus new — giving a 25% buffer in case revenue dips. Many UK lenders use a similar threshold when assessing affordability.
This model deliberately builds in headroom rather than lending against revenue at full stretch — it reflects what a cautious lender would offer, and what you could comfortably repay even in a slower month, not the theoretical maximum.
It means current costs and existing repayments already absorb your profit margin. Worth knowing before you apply anywhere — options at that point are usually to increase margin, reduce existing commitments, or look at revenue-linked finance like invoice factoring instead of a fixed monthly repayment.