How Much can my Business Borrow?

The most common question we receive from clients is, "How much can my business borrow?" Whether the business has a clear growth opportunity, is considering raising equity but doesn't want to give away any shareholding, or is simply curious, this is usually the first question in the funding process.

The problem is, the question has many different answers. The simplest way to look at it is this: if you're asking the lending market for finance, what are lenders receiving in return? More security? A higher interest rate? A shorter repayment term? Every lending decision is a balance between risk and reward.

Each type of business finance has different criteria when it comes to determining how much a business can borrow. Below, we break down the main lending products and explain how lenders typically assess borrowing limits.

Unsecured loans

Unsecured lenders will often only require a personal guarantee from a director or shareholder to support the facility. There is usually no property, asset or debenture securing the loan, meaning the lender is relying primarily on the strength of the business and its ability to make the repayments.

As a result, lenders will place significant emphasis on:

• Historic profitability.
• Cashflow and affordability.
• Turnover and trading history.
• Existing borrowing commitments.
• The directors' credit profiles.

Unsecured lenders use affordability calculations to determine the maximum loan available. While every lender has its own criteria, a business with strong, consistent cash generation will generally be able to borrow considerably more than one with fluctuating or seasonal income.

The tier of lending that specific lender operates in will also have an impact on the amount they can offer. Tier 1 & 2 lenders will typically offer up to 60% of annual turnover, whereas tier 3-4 lenders will base it off an average monthly income minus any existing borrowing commitments, this is usually 1-2x monthly revenue.

Secured loans

Secured lending allows businesses to unlock the value held within residential or commercial property. Because the lender has tangible security, facilities can often be significantly larger than unsecured loans.

Typical characteristics include:

• Lending of up to around 75% of the available equity, depending on the property type and lender.
• Lower interest rates compared with unsecured facilities.
• Longer repayment terms.
• Greater flexibility where affordability alone may not support the required borrowing.

Unlike unsecured lending, lenders are often more focused on the available security than the latest year's financial performance. This can make secured lending an attractive option for businesses with substantial property assets but limited cashflow.

Secured facilities can also be structured as revolving credit lines, allowing businesses to draw funds as required rather than borrowing the full amount upfront.

Asset finance

Asset finance is one of the simplest forms of lending to understand. The lender is financing the purchase of a specific asset, with that asset acting as security throughout the agreement.

Examples include:

• Commercial vehicles.
• Manufacturing machinery.
• Construction equipment.
• Agricultural equipment.
• Specialist business assets.

Because the lender retains security over the asset itself, businesses can often finance a very high percentage of the purchase price, sometimes up to 100% depending on the asset and the strength of the application.

The amount available is therefore driven primarily by the value, condition and resale market of the asset being financed.

Invoice & trade finance

Invoice finance and trade finance work differently to traditional business loans because the borrowing is linked directly to your trading activity.

With invoice finance, lenders advance a percentage of the value of your outstanding invoices, often between 80% and 95%, with the remaining balance released once your customer has paid.

Trade finance focuses on funding stock purchases or supplier payments, allowing businesses to fulfil larger orders without tying up working capital.

Rather than assessing the business in isolation, lenders will also consider:

• The quality of your customer base.
• Payment history of your debtors.
• Concentration risk (whether one customer represents a large proportion of turnover).
• Supplier relationships.
• The underlying transactions being funded.

For businesses experiencing rapid growth, these facilities can often increase automatically as sales increase, making them highly scalable compared with fixed-term loans.

So, how much can your business actually borrow?

The honest answer is that there isn't a single formula.

A business with £2 million of property may be able to raise substantially more through secured lending than through an unsecured loan. Equally, a fast-growing business with a strong debtor book may find invoice finance provides significantly more working capital than a conventional term loan.

The key is understanding which lenders are best suited to your business and which funding products align with your objectives.

At Kingswear Financial, we assess your business, funding requirement and future plans before approaching a panel of over 50 UK lenders. This allows us to identify the most appropriate funding structure and maximise the amount your business can access, without applying to lenders unnecessarily.

If you're wondering how much your business could borrow, we can provide an initial assessment at no cost and with no impact on your credit profile.