Free tool
Business loan serviceability calculator.
Most calculators take turnover and an advertised rate and guess. This one does what a credit team does: it starts from adjusted earnings, consolidates the commitments you already have, and tests the repayment at an assessment rate above the one you were quoted.
Business loan serviceability
Worked from figures entered by the reader. Indicative only, and not advice of any kind.
The numbers carry it.
On these figures the earnings cover the debt at the target cover ratio, tested at the assessment rate rather than the offered one.
Debt service cover
1.75 times
Covenant headroom
68,846 dollars
Tested at 9.85% p.a. Earnings can fall 14.3% before cover reaches the target.
Interest cover
4.18 times
Earnings against year one interest.
Max facility
1,491,251 dollars
At 1.50x on these earnings.
Earnings can fall by
14.3%
Before cover reaches the target.
- Annual debt service, new facility
- $189,103
- Annual debt service, all commitments
- $274,103
- Earnings required at target
- $411,154
- Covenant headroom
- +$68,846
- Facility per extra $10,000 of earnings
- $42,000
What to do next
A calculator takes your figures at face value. A lender will not. The next step is the same arithmetic run from your actual financials, in the workbook a credit team reads.
Get the fixed fee for the model that proves it- Interest cover here counts the new facility only. Enter the interest portion of your existing commitments for a full read.
Indicative only, on the figures you entered. The Debt Capacity Assessment runs this from your actual financials, with every add-back evidenced.
The method
How each number is worked out.
Nothing here is proprietary. It is the same arithmetic a commercial credit team runs, which is why it is worth seeing before they run it.
| Figure | How it is worked out | Why a credit team cares |
|---|---|---|
| Annual debt service | The facility amortised over the term at the assessment rate, times twelve, plus your existing annual commitments. | It is the repayment they test you against, not the one you were quoted. |
| Debt service cover (DSCR) | Adjusted earnings divided by total annual debt service. | The single number most commercial credit decisions turn on. |
| Interest cover (ICR) | Adjusted earnings divided by the interest paid across the first twelve months. | Shows whether earnings cover the cost of the money before any principal. |
| Earnings required | Target cover ratio times total annual debt service. | The binding number. Below it, the covenant breaches. |
| Covenant headroom | Adjusted earnings less the earnings required. | The cushion. Lenders price risk off how thin it is. |
| Maximum facility | The debt service the earnings support at the target ratio, converted back to a loan amount over the same term and rate. | Tells you the ceiling before you go looking for a lender. |
Annual debt service
- How it is worked out
- The facility amortised over the term at the assessment rate, times twelve, plus your existing annual commitments.
- Why a credit team cares
- It is the repayment they test you against, not the one you were quoted.
Debt service cover (DSCR)
- How it is worked out
- Adjusted earnings divided by total annual debt service.
- Why a credit team cares
- The single number most commercial credit decisions turn on.
Interest cover (ICR)
- How it is worked out
- Adjusted earnings divided by the interest paid across the first twelve months.
- Why a credit team cares
- Shows whether earnings cover the cost of the money before any principal.
Earnings required
- How it is worked out
- Target cover ratio times total annual debt service.
- Why a credit team cares
- The binding number. Below it, the covenant breaches.
Covenant headroom
- How it is worked out
- Adjusted earnings less the earnings required.
- Why a credit team cares
- The cushion. Lenders price risk off how thin it is.
Maximum facility
- How it is worked out
- The debt service the earnings support at the target ratio, converted back to a loan amount over the same term and rate.
- Why a credit team cares
- Tells you the ceiling before you go looking for a lender.
A worked example
What a deal that does not service looks like.
A business with $310,000 of adjusted earnings and $140,000 a year of existing commitments wants $900,000 over 7 years. Quoted at 8.5%, assessed at 10.5%.
The debt is not covered on these figures.
Earnings do not reach the cover ratio at the assessment rate. Either the facility comes down, the term stretches, or the earnings case needs rebuilding from evidence.
Debt service cover
0.96 times
Covenant shortfall
minus 173,143 dollars
Tested at 10.5% p.a. Earnings would need to reach $483,143 to clear it.
Annual debt service
$322,095
All commitments, at the assessed rate.
Maximum facility
$329,000
What these earnings actually support.
What to do next
On these figures the facility does not service. That is worth knowing before a lender tells you, because a decline sits on the file. Usually the case can be rebuilt from evidence, or the facility resized.
See why submissions fail, and what changes itThe deal is roughly $571,000 too big, not impossible. That is a different conversation to have with a vendor, and a much better one to have before an application goes in rather than after it comes back declined.
The number that moves the answer
Why the assessment rate matters more than the rate you were quoted.
A credit team never tests your repayment at the advertised rate. They add a buffer, then check whether the earnings still cover the larger repayment. That is the whole point of the exercise: they are not asking whether you can pay today, they are asking whether you can pay if rates move against you.
It is also why borrowers consistently overestimate their own capacity. Change the assessment rate in the calculator above and watch the maximum facility move. That gap, between the rate you were quoted and the rate you are tested at, is where most declines actually happen. More on assessment rates.
For context
Cover ratios commonly seen.
What we see across commercial files. This is market observation, not any lender's policy, and appetite moves with the cycle and the sector.
| Facility type | Cover commonly sought | Why |
|---|---|---|
| Business acquisition | 1.25x to 1.50x | Higher where goodwill is most of the price |
| Owner-occupied commercial property | 1.25x to 1.40x | Security carries some of the risk |
| Equipment and asset finance | 1.20x to 1.35x | The asset is realisable |
| Expansion or second site | 1.50x or higher | Forecast earnings, so more buffer wanted |
Business acquisition
- Cover commonly sought
- 1.25x to 1.50x
- Why
- Higher where goodwill is most of the price
Owner-occupied commercial property
- Cover commonly sought
- 1.25x to 1.40x
- Why
- Security carries some of the risk
Equipment and asset finance
- Cover commonly sought
- 1.20x to 1.35x
- Why
- The asset is realisable
Expansion or second site
- Cover commonly sought
- 1.50x or higher
- Why
- Forecast earnings, so more buffer wanted
What this does not do
- Any individual lender's policy, appetite or credit rules
- Whether your add-backs would survive review
- Group structures, intra-group flows or multiple trading entities
- Security, loan to value ratios or guarantor positions
- Fees, line fees, establishment costs or break costs
- Tax, or the structure the debt should sit in
Want the version built from your actual financials?
The Debt Capacity Assessment runs this same workbook from your real accounts, with every add-back evidenced and every existing facility confirmed from statements. $1,850, 5 business days, for facilities from $100,000 upwards.
Want the facility arranged as well?
We do the whole job: rebuild the earnings, write the submission, and take it to the lenders who will actually do the deal. Send a few details and Nick reads it himself.
Common questions
A turnover-and-rate calculator takes revenue and an advertised rate and guesses. This one works the way a credit team works: adjusted earnings rather than turnover, every existing commitment consolidated, and repayments tested at an assessment rate above the rate you have been offered. That last input is the one most calculators leave out, and it is usually the reason a borrower's own estimate is too high.
Most commercial credit teams want to see at least 1.25x, and 1.50x is a common target on acquisition and expansion debt. Above 1.75x you have real room to move. The ratio matters less than what sits behind it: a 1.60x built on evidenced earnings reads better than a 2.00x built on add-backs nobody has tested.
Because the credit team never assesses at the rate you are quoted. They add a buffer, so the repayment they test is larger than the repayment you will actually make. A deal that services comfortably at the offered rate can fail at the assessed one, and that gap is where most surprises come from.
It is the dollar gap between your earnings and the earnings the target cover ratio requires. Positive headroom is the cushion before you breach. The calculator also shows what percentage your earnings could fall before that happens, which is usually the more useful way to look at it.
Interest cover needs the interest portion of your debt, and existing commitments are entered as a combined principal-and-interest figure. If you know the interest split, enter it and the ratio appears. We do not guess it, and interest cover never changes the verdict for that reason.
No. It is arithmetic on the numbers you typed in, and it assumes those numbers are right. A real assessment starts by testing whether they are: earnings rebuilt from source documents, add-backs evidenced one at a time, existing facilities confirmed from statements. That is the Debt Capacity Assessment, $1,850 with a five business day turnaround, and free for clients of The Lending Lab.
Yes. Credit assistance is provided by Nicholas Clunes, Credit Representative Number 530711, authorised under Australian Credit Licence Number 387856, through The Lending Lab Pty Ltd. What this page gives you is indicative and is not a credit assessment. You are also free to take the work to any broker or lender you like.
General information only. Indicative, not a credit assessment, and not an offer of finance. Lending decisions rest with the lender and depend on your circumstances and their criteria. Cover ratios shown are market observation, not any lender's policy.