How lenders assess business loan affordability, step by step

Stage one: the cash a lender can actually see

Before any ratio is calculated, an underwriter reads your recent bank activity — typically six to twelve months — to establish the steady, repeatable cash your trading throws off. One-off receipts, director loans and inter-account transfers are stripped out. This is why a business with strong headline sales but messy banking can still struggle: the lender funds what it can verify, not what you say. Tidy, categorised statements make the number bigger.

Stage two: your existing commitments

Next the lender adds up what already leaves your account each month — existing loans, asset finance, an overdraft, tax instalments and rent. New repayments have to fit on top of these, so a business already carrying debt has less headroom for more. This total is the "debt service" side of the DSCR equation.

Stage three: the cover ratio

Cash available divided by total repayments gives the debt service cover ratio. Most working-capital lenders look for at least 1.25 — £1.25 of cash for every £1 of repayment. Below 1.0 the maths simply does not work, and the application is resized or declined. See loan affordability for the full method.

Stage four: the stress test

A responsible lender does not stop at today's numbers. It reruns the cover ratio with sales knocked back 10–20% or a slow quarter modelled in, to check you could still pay if trading dipped. This is why borrowing the technical maximum is rarely wise — the buffer is what protects you when a customer pays late. Read how to stress test a loan.

Prepare for each stage before you apply

Reconcile your bank feed, chase overdue invoices, and list your existing commitments honestly so nothing surprises the underwriter.

Credicorp lends to your company, not to you personally, and takes no personal guarantee. See indicative terms on business loans, or apply online in minutes.