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Definition
Headroom is the unused borrowing capacity a business has available — the gap between what it has drawn and its facility limits, or its capacity to borrow more if needed. Financial headroom is the cushion that lets a business absorb a shock without a scramble.
In plain terms
If you have a £100,000 facility and have drawn £60,000, you have £40,000 of headroom. Maintaining headroom means you are never one bad month from a crisis, and can seize an opportunity without delay.
Why it matters
Arranging headroom before you need it — a committed facility on standby — is prudent cash management. See committed facility and cash buffer.
Related reading
Committed facility
A committed facility is credit the lender is legally bound to provide up to an agreed limit — certainty you…
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Uncommitted facility
An uncommitted facility is credit the lender <em>may</em> provide but never has to — cheaper than a committed…
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Cash buffer
A cash buffer is a reserve of cash a business keeps in hand to absorb the normal ups and downs of trading —…
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Headroom — Business Finance Glossary
Headroom is the margin between a borrower's actual financial performance and the threshold at which a…
Read →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.