How much can my limited company borrow?

Unsecured lenders often look at annual or monthly turnover to sense-check a request. Some cap unsecured lending at a proportion of annual turnover, commonly a fraction rather than a multiple, while others focus on average monthly bank credits. These are rules of thumb that vary widely between lenders and change over time, so treat any figure you hear as an indication, not a promise.

Turnover alone says little about whether a business can repay. A high-turnover, low-margin company may be able to borrow less than a smaller, more profitable one.

The real limit is affordability. Lenders estimate how much cash the business generates after its running costs, then check that this comfortably exceeds all debt repayments, new and existing. Many express this as a debt service cover ratio (DSCR): cash available for debt service divided by total debt repayments over the same period.

• A DSCR above 1 means the business generates more than enough cash to meet repayments.
• Lenders usually want headroom above 1, so a shortfall in trading does not immediately cause a missed payment. The level they require varies by lender, sector and product.
• Cash available is often based on profit before interest, tax, depreciation and amortisation, adjusted for items such as director drawings and capital spending.

Longer terms reduce each repayment and can increase the amount a company can borrow, but they also increase total interest.

Security can increase the amount available and lengthen the term. For a secured loan, lenders typically lend up to a proportion of the value of the assets charged, for example through a debenture over the company or a charge on equipment and vehicles, and still check affordability. Asset finance is sized against the price and resale value of the equipment. Invoice finance is sized against eligible debtors, usually as a percentage of approved invoices. Directors are often asked for personal guarantees as well.

A longer, consistent trading record gives lenders more confidence. Lenders set their own minimum trading period: some consider businesses trading for a few months, while others want two years or more of filed accounts. A company just past its first year may be offered smaller amounts or shorter terms than one with several years of filed accounts showing steady growth. Up-to-date management accounts help if your last year-end is some months old.

Lenders review the company credit file and the personal credit files of directors and major shareholders. Late filing, county court judgments, defaults or heavy use of existing credit can reduce the amount offered or narrow the choice of lenders. A clean file does not guarantee a larger loan, but problems can cap it.

Every existing loan, lease, overdraft, merchant cash advance and HMRC arrangement reduces the cash available for new repayments. Lenders will see most of it on credit files and bank statements, so list it all upfront: lender, balance, monthly payment and end date. Sometimes consolidating or refinancing existing debt onto a longer term frees up enough affordability to support the new borrowing.

1. Work out how much you actually need, and what for.
2. Prepare recent management accounts and bank statements.
3. List existing debt and security already given.
4. Consider which product fits the purpose, as each is sized differently.
5. Get indicative terms before a full application, ideally using a soft search where available.

The amount a lender will offer is a ceiling, not a target. If the repayments would leave little headroom in a quiet month, borrowing less, or over a structure that flexes with sales such as invoice finance, is often the safer choice.

Welcome Finance is a commercial finance broker for UK limited companies, LLPs and partnerships of four or more partners. We are not authorised or regulated by the FCA. Our 60-second eligibility check will not affect your credit score, and it gives us enough to tell you realistically what may be available, and from which types of lender, before you apply.