2 min read
DSCR = net operating income ÷ total debt service. Lenders typically look for 1.25 or higher.
Step 1: borrow with headroom
The best defence against default is set before you sign: keep your cover ratio at 1.25 or more so a slow month does not break the repayment. A loan sized with headroom rarely defaults.
Step 2: watch the warning signs
Learn the early signals — paying suppliers late, a shrinking bank balance each month, relying on an overdraft to make loan payments. These red flags appear well before a missed payment and give you time to act.
Step 3: act fast when cash tightens
If money is getting tight, move immediately: chase invoices, cut discretionary spend, and free up cash. A few weeks of decisive action often bridges a temporary squeeze before it reaches a payment date. See improving cash flow.
Step 4: talk to your lender early
If you still expect to struggle, contact the lender before you miss a payment. A good lender would rather agree a short plan or a restructure than face a default. Silence closes options; early honesty keeps them open. See missed a payment?
Keep the buffer intact
Use the calculator to confirm your repayment stays comfortable as circumstances change.
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.
Frequently asked questions
How do I avoid defaulting on a business loan?
Borrow with headroom so a slow month does not break the repayment, watch for early warning signs like late supplier payments, act fast when cash tightens, and contact your lender before you miss a payment.
What are the early signs of loan trouble?
Paying suppliers late, a bank balance shrinking each month, and relying on an overdraft to make loan payments. These appear well before a missed payment and give you time to act if you notice them.
Should I contact my lender if I might struggle?
Yes, before you miss a payment. A good lender would rather agree a short plan or restructure than face a default. Reaching out early keeps options open that silence would close.
Related reading
Missed a business loan payment? What happens and what to do
A single missed payment is a problem to solve, not a catastrophe — if you act fast. The consequences escalate…
Read →
Business loan arrears: understanding and clearing them
Arrears are missed payments that have stacked up — a clear signal to act. Left alone they damage credit and…
Read →
Affordability red flags: signs a loan is too much
Affordability trouble announces itself before it arrives. Thin cover, a plan that only works in your best…
Read →
Borrowing headroom: why you should leave a buffer
The amount you <em>can</em> borrow and the amount you <em>should</em> borrow are rarely the same. Headroom —…
Read →How to improve cash flow before you borrow
Better cash flow means a bigger, cheaper loan. Since affordability is measured on the cash a lender can see,…
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.