What this calculator checks
Repayment coverage asks a simple question: if you add the new loan, does the business still earn comfortably more than it must repay each month? It divides your average monthly profit before loan repayments by the total of existing and new repayments. The answer is a multiple. A result of 2.0 means earnings are double the repayments; 1.0 means every dollar of profit goes to lenders; anything below 1.0 means the business would need to find money from somewhere else to keep up.
Lenders run their own version of this test, usually from your financial statements or bank statements, and each sets its own thresholds. Running it yourself first shows whether the loan size and term you have in mind are realistic, and whether a longer term, smaller amount or different structure would be easier to live with.
How to read your result
| Coverage | What it usually means |
|---|---|
| Below 1.0 | Repayments exceed what the business earns. Reconsider the amount or term, or address profitability first. |
| 1.0 to 1.25 | Tight. One slow month could mean missed repayments. Expect lenders to look closely. |
| 1.25 to 1.5 | Workable for many businesses with steady income, but keep a cash buffer. |
| Above 1.5 | Comfortable headroom for most purposes, subject to the lender's other checks. |
These bands are a general guide we use for illustration, not a lender's policy.
Improving coverage before you apply
- Stretch the term. A longer term lowers each repayment, although it usually raises the total cost.
- Borrow what the job needs. Size the loan to the purpose, not the maximum on offer. The cash flow gap calculator helps you find the real figure.
- Consolidate expensive short debts. Several daily-debit loans can drag coverage down. Our guide to business debt consolidation explains when combining them helps.
If your coverage looks healthy and you want to see what is possible, start one enquiry. It does not involve a credit check, one lending partner reviews it, and a person will talk you through realistic options. If coverage looks tight, it is still worth a conversation, and you can describe your situation so the options suggested fit what the business can carry.
Frequently asked questions
What is repayment coverage?
It compares the money your business generates with the loan repayments it has to make. If profit before loan repayments is twice the repayments, coverage is 2 times. Lenders use similar measures, often called debt service coverage, to judge whether a business can afford new debt.
What profit figure should I use?
Use your average monthly profit before loan repayments, tax, depreciation and any owner drawings that are really profit. Your accountant's management accounts or the last financial year divided by twelve are good starting points. Be conservative if trade is seasonal.
What coverage do lenders look for?
It varies by lender, product and industry, and there is no single published standard. As a broad guide, coverage comfortably above one leaves room for a bad month, while coverage near or below one means the business would struggle to make repayments from its own earnings.
Does this replace a lender's assessment?
No. Lenders look at bank statements, existing debts, security and credit history as well as profit. Use this as a self-check before you apply so there are no surprises.
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