How to check your company can afford to borrow

Step 1 — find the cash the business really generates

Start with operating profit, add back non-cash costs like depreciation, and subtract tax and unavoidable commitments. Use recent management accounts, not stale filed figures. What's left is the cash actually available to service new borrowing — the number everything else builds on.

Step 2 — calculate your debt service cover

Divide that free cash by the annual repayments you're considering to get your debt service cover ratio. Aim comfortably above 1.25 — meaning the business makes £1.25 of cash for every £1 of repayment. Below 1.0 means it can't currently service the debt from its cash. The affordability calculator does this in seconds.

Step 3 — stress-test the repayment

Comfort at today's trading isn't enough. Re-run the sums on a bad scenario — a 15% drop in sales, a big customer lost, a slow quarter — and see if the cover still holds. If a modest dip pushes you below 1.0, the borrowing is too tight. Better to find that out now than three months into the loan.

Step 4 — check the wider picture

Look beyond the single loan at your total debt burden: your gearing and interest cover across all facilities. Adding one affordable repayment on top of several others can still overload the business. Affordability is about the whole load, not just the newest piece.

Step 5 — right-size the request

Use what you've found to ask for the amount and term the numbers actually support — not the most you could get. Borrowing that passes your own stress test will usually pass the lender's too. Credicorp lends to the company, not to you personally, with no personal guarantee. See how lenders assess affordability.