2 min read
DSCR = net operating income ÷ total debt service. Lenders typically look for 1.25 or higher.
Why stress test at all
Affordability at today's numbers tells you the loan fits now. But businesses hit slow quarters and rates move. A stress test asks the harder question: would the repayment still fit under pressure? Answering it before you borrow is how you avoid arrears later.
Test one: a sales downturn
Cut your monthly free cash by 15–20% and recompute the cover ratio. If it stays above 1.0, the business could still meet the repayment through a soft patch. If it drops below, the loan is too large for comfort — reduce the amount or lengthen the term.
Test two: a rate rise
If the loan is variable, recompute the repayment with the rate two points higher and check cover again. A fixed-rate loan removes this risk entirely, which is one reason many directors prefer fixed for planning. See understanding APR.
Act on the result
If the loan survives both tests with cover above 1.0, it is genuinely affordable. If not, the fix is the same lever every time: borrow less, or spread it over a longer term. Read borrowing headroom.
Run both tests
Use the calculator to model the downturn and the rate rise and see whether your cover holds.
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 stress test a business loan?
Recompute your cover ratio with monthly cash cut 15–20% to model a sales dip, and, for a variable loan, with the rate two points higher. If cover stays above 1.0 in both, the loan is genuinely affordable.
Why does a lender stress test affordability?
Because a loan affordable only in a good month causes missed payments when trading slows or rates rise. Stress testing confirms the repayment still fits under pressure, protecting both borrower and lender.
What if my loan fails the stress test?
Borrow less or extend the term. Both lower the repayment, lifting your cover ratio so it survives a downturn. It is better to adjust before signing than to face arrears later.
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