How much should your business borrow?

Size to the job, not the appetite

The most common borrowing mistake is taking what is offered rather than what is needed. A lender approving £80,000 does not mean £80,000 is the right number — it means that is their ceiling on your affordability. Borrow more than the job requires and you pay interest on cash sitting idle; the surplus rarely earns its keep and often gets absorbed into general spending, which is how a specific facility quietly becomes permanent debt.

Start from the need, not the limit. Define precisely what the money is for and what it costs — the exact stock order, the specific machine, the size of the cash gap you are bridging — and borrow that, plus a sensible contingency, and no more. Discipline here is the difference between finance that solves a problem and finance that becomes one.

Matching the amount to the cash gap

For working-capital borrowing, the right figure is the size of the gap you are covering. Map the shortfall: how much cash do you need, for how long, before the receipts that close it arrive? A company waiting on a £25,000 invoice in 45 days needs roughly that gap bridged — not a round £50,000 because it was available. Forecasting the gap precisely is the whole game; our how to forecast cash flow guide shows how to pin it down.

For growth borrowing, the figure is set by the opportunity — the cost of the order, the machine, the hire — and crucially by whether the return comfortably covers the repayments. Our growth vs survival borrowing guide draws the line between funding a return and funding a hole; only the former justifies the amount at all.

Affordability sets the ceiling

Whatever the job suggests, affordability is the hard limit on top. The repayments have to fit comfortably inside your cash flow with room to spare — a facility you can only just service in a good month will break you in a bad one. The standard tool here is debt service coverage: how many times over your trading cash covers the repayments. Comfortably above one is the goal; close to one is fragile.

Model it before you commit. The affordability calculator shows what a given amount and term cost each month against your figures, and how to calculate affordability walks through the method. If the comfortable amount is less than the job needs, that is vital information — it usually means phasing the spend or revisiting the plan, not stretching the borrowing.

Match the term to the purpose

Amount and term work together. A short cash gap should be funded short — borrowing for two years to cover a 60-day shortfall means paying interest long after the gap closed. A longer-lived asset can support a longer term, spreading the cost over the period it earns. The principle is to match the repayment period to the life of what you are funding; our choosing the right loan term guide covers the trade-off in full.

Get amount and term right together and the facility does exactly one job, costs only what that job warrants, and clears cleanly. Credicorp lends to the company with no personal guarantee, sized to the need rather than the maximum. This guide is educational and not financial advice.