How Much Can My Business Borrow?
Not a multiple of your revenue. A lender works out three separate ceilings, what your adjusted profit can service, what your security supports and what its own policy allows, then lends you the lowest of them. Here is how each one is calculated, with a worked example.
The short answer
How much your business can borrow is the lowest of three limits a lender calculates: what your adjusted profit can repay at the lender’s assessment rate, what your security supports at the lender’s loan to value ratio, and any policy cap on total debt against earnings. Revenue is a starting filter, not the formula. For most small businesses the limit that binds is security, because the RBA reports less than 5% of SME credit is unsecured.
Why revenue is the wrong place to start
Search for how much a business can borrow and the first answers are usually a revenue rule of thumb: a percentage of turnover, a multiple of monthly sales. Those rules come from unsecured and online lenders sizing small, short facilities on bank account data. They describe how those lenders set a limit. They say almost nothing about how a secured business loan or a commercial property loan is sized.
A lender assessing a secured business loan asks three separate questions, and each one produces its own number:
- Servicing. Can the business repay this, on its adjusted earnings, at a rate higher than the one it will actually pay?
- Security. If the business cannot repay, what can the lender recover, measured against its own valuation rather than yours?
- Policy. Does the total debt, the industry, the trading history and the conduct of the account sit inside what this lender will do at all?
The offer is the lowest of the three. That single fact explains most of the confusion business owners bring to this question. Two businesses with identical turnover can support very different loans, and a business can pass the servicing test comfortably and still be offered far less than it asked for, because a different ceiling was binding all along.
It also explains why security matters so much in small business lending. The Reserve Bank’s October 2025 Bulletin on small business conditions reports that the share of SME credit that is unsecured has stayed below 5% in recent years. Almost everything else is secured by something, which means the security ceiling is where a great deal of business borrowing actually stops. There is more on how secured and unsecured facilities compare in cost in our guide to secured versus unsecured business loans.
Ceiling 1: what your profit can service
The servicing ceiling answers one question: how much debt can this business’s earnings repay, with a margin for things going wrong? Lenders get there in 4 steps.
Start from profit, not turnover, then add back
The starting point is net profit before tax from the most recent lodged financial statements, with the tax returns alongside. Full documentation lenders commonly look at the last 2 years. Then the lender adjusts that profit to reach a figure closer to the cash the business genuinely generates, usually called adjusted earnings or EBITDA: earnings before interest, tax, depreciation and amortisation.
The adjustments are called add-backs, and they are where the servicing number is won or lost. Items lenders commonly add back, where the evidence supports them:
- Depreciation and amortisation. Non-cash expenses. The money left the business when the asset was bought, not this year.
- Interest on existing debt. Added back to earnings because the lender counts every repayment separately when it totals your commitments. Leaving it in would deduct it twice.
- Genuine one-off costs. A settled legal dispute, a relocation, a single year of unusual repairs. Each needs invoices and a credible reason it will not recur.
- Rent that stops. If the loan is to buy premises the business already rents, the rent disappears on settlement, and lenders commonly add it back.
- Owner remuneration above a commercial wage. Some lenders will normalise what the owners pay themselves, with evidence. Treatment varies more on this item than on any other.
And what lenders commonly refuse to add back: a “one-off” that appears every year, personal spending run through the business without documentation, income that is not in the books, and revenue the business expects to earn but has not yet earned. Forecasts support an application. They are rarely the number it is sized on.
The number your accountant works hard to make small is the number the lender sizes your loan on. Add-backs are how that gap gets closed, and only the ones you can evidence count.
That tension is real and it is nobody’s fault. Legitimate tax planning lowers reported profit. Lending capacity is built on reported profit. The way through is not to report differently. It is to document the add-backs properly before the application goes in, which is where most of the useful work on a business loan happens. Anything touching tax treatment is a conversation for your accountant, and the two of us can usually agree the add-back schedule between us before a lender sees it.
The assessment rate is not your rate
Lenders do not test repayments at the rate you will pay. They test them at a higher assessment rate, so the loan still works if rates rise or earnings dip. For home loans this is formalised: APRA expects banks to assess new borrowers at least 3 percentage points above the loan’s rate. Business lending has no equivalent published buffer. Each lender sets its own, and it varies with the facility, the industry and the security.
This is why a repayment that looks affordable on today’s rate can still fail a servicing test. It is also why rate movements change borrowing capacity even for businesses whose profit has not moved at all: a higher assessment rate means the same earnings support a smaller loan.
Cover ratios: DSCR and ICR
The last step compares adjusted earnings with the repayments. There are 2 ratios that do this, and which one a lender applies matters.
- Debt service cover ratio (DSCR) divides adjusted earnings by total annual repayments on all business debt, principal and interest together. A DSCR of 1.5 means earnings cover every repayment one and a half times. It is the usual test for a trading business repaying principal.
- Interest cover ratio (ICR) divides earnings by interest only. It is commonly used for investment property assessed on its rent, and for interest-only facilities.
Each lender sets its own minimum, and that minimum moves with the industry, the security and the type of facility. There is no single figure that applies across the market, and any page quoting one is describing one lender’s policy. The same business can pass one ratio and fail the other, which is why it is worth knowing which test is being applied before the application is lodged.
Want your three ceilings worked out on your own numbers?
Bring your last 2 years of financial statements and details of any property you could offer as security. We work out servicing, security and policy limits on your figures and show you which one binds. About 15 minutes. No obligation, and no fee at any point.
A worked example: buying the factory you lease
Take a fabrication business in Penrith that has leased the same factory for years and now has the chance to buy it for $1.4 million. Every figure below is illustrative, chosen so the arithmetic is easy to follow. None of it is a quote, a forecast or any lender’s policy.
| Line | Amount | Why a lender might accept it |
|---|---|---|
| Net profit before tax | $180,000 | The starting point, from the lodged financial statements |
| Add back depreciation | $45,000 | Non-cash. The equipment was paid for when it was bought |
| Add back interest on existing debt | $12,000 | Counted again when the lender totals repayments, so not deducted twice |
| Add back one-off legal costs | $15,000 | A settled dispute, with invoices and the settlement to show it will not recur |
| Add back rent on the factory | $72,000 | Stops on the day the business owns the building |
| Adjusted earnings (EBITDA) | $324,000 | The figure the servicing test runs on |
Now the three ceilings. The example assumes an illustrative minimum cover ratio of 1.5, an existing equipment loan costing $48,000 a year with $150,000 still owing, a 20-year principal and interest term, and an assessment rate of 9% a year. That rate is a modelling input chosen for the arithmetic. It is not a quote, a forecast or any lender’s rate.
| Ceiling | How it is calculated | Result |
|---|---|---|
| Servicing | $324,000 divided by 1.5 allows $216,000 a year of total repayments. Less the $48,000 already committed leaves $168,000 a year, or $14,000 a month, for the new loan. Over 20 years at the modelling rate that supports roughly $1.56 million | About $1,556,000 |
| Security | 65% of a $1.4 million lender valuation of the factory | $910,000 |
| Policy | An illustrative cap of 3.5 times adjusted earnings allows $1,134,000 of total business debt, less the $150,000 still owing on the equipment loan | $984,000 |
| What the lender offers | The lowest of the three | $910,000 |
There are 3 things worth noticing in that table.
The add-backs were worth a great deal, and in this case they did not matter. Without the rent and the one-off legal costs, adjusted earnings would be $237,000 and the servicing ceiling would fall to about $1.02 million. The 2 add-backs, worth $87,000 on paper, moved it by more than $530,000. Yet the offer is $910,000 either way, because security, not servicing, is the ceiling that binds. Fighting harder over the add-backs would not change the answer by a dollar.
The business is short by more than the price of the building suggests. At $910,000 of lending against a $1.4 million purchase, the gap is $490,000 before stamp duty and purchase costs. The servicing ceiling says the business could comfortably repay far more. The lender simply will not lend it against this building alone.
Every way of closing that gap is a different decision. A larger cash contribution. Additional security, which for most small business owners means residential property. A lender whose policy on this type of property, or this industry, sits differently. Or a smaller purchase. None of those is a formula. Each one carries its own cost and its own risk, and the second is the one to think about longest.
Find the ceiling that binds before you try to raise one. Effort spent on the other two changes nothing about the offer.
Ceiling 2: what your security supports
The security ceiling is the loan to value ratio (LVR) applied to the lender’s valuation. Both halves of that sentence carry weight.
The valuation is the lender’s, not yours. A lender instructs its own valuer, and the figure that comes back is the one the ceiling is built on. It can land below the contract price, particularly on specialised or single-purpose property, and when it does, the loan shrinks with it. For standard commercial security, lenders commonly lend around 65 to 70% of their valuation. Those figures are indicative only and are set by individual lenders. Specialised property, vacant land and properties with short or weak leases usually sit lower.
The asset decides the LVR as much as the business does. A strong business buying a building few other businesses could use is lending against security that is hard to sell, and the ceiling reflects that. There is more on how a lease shapes a commercial property loan on our commercial property loans page.
This is also where residential property enters most small business lending. When the business’s own assets do not stretch far enough, a director’s home is frequently offered as additional security. It works, and it is common. It also means the lender can sell your home if the business cannot repay. That is a decision about personal risk before it is a finance decision, and a solicitor is the right person to explain the mortgage and any guarantee to you before you sign them.
Not everything needs property behind it. The same RBA Bulletin found that around half of small loans to SMEs are secured by assets other than residential property, such as vehicles and equipment, a share that has risen since 2019. Where the thing being bought can secure itself, it is often cleaner to finance it that way and keep property free for the lending that genuinely needs it. Our equipment finance page explains how an asset carries its own facility.
Ceiling 3: lender policy, and what overrides the maths
The third ceiling is the least visible, because it is not one calculation. It is the set of rules a lender applies regardless of how well the numbers work.
- Total debt against earnings. Larger facilities are often tested against total business debt as a multiple of adjusted earnings. Where that multiple sits is set by each lender and moves with the industry. Our corporate loans page covers how leverage is assessed on larger facilities.
- Trading history. The common full documentation standard is 2 years of lodged financials. Newer businesses, or those without current financials, are assessed on different evidence under low documentation lending, which means different evidence rather than less scrutiny.
- Tax position. An ATO debt does not end an application automatically, but whether it is on a payment arrangement, and whether that arrangement is being met, is looked at closely. A debt disclosed up front is far easier to work with than one that surfaces during assessment.
- Industry appetite. Lenders adjust how much exposure they want to particular industries, and those settings change without announcement.
- Concentration and conduct. One customer carrying a large share of revenue reads as risk. So do dishonoured payments, persistent overdraft excesses and arrears on existing facilities.
Policy is also where the choice of lender makes the biggest difference. Servicing and security are arithmetic, and most lenders will arrive at similar answers from the same figures. Policy is where they genuinely disagree. A file declined on policy with one lender can sit comfortably inside the settings of another, which is a large part of why comparing across a panel is worth doing on business lending. The documents lenders ask for at this stage are covered in what a commercial loan really requires.
What actually moves each ceiling
Once you know which ceiling binds, the question becomes what moves it. Each one responds to different things, and effort on the wrong one is wasted.
| Ceiling | What tends to move it | What does not |
|---|---|---|
| Servicing | Documented add-backs, a longer loan term, paying out or restructuring existing debt, lodging a stronger year of financials | Revenue growth that has not reached profit, forecasts, undocumented cash income |
| Security | A larger contribution, additional security, a lender with a different view of the property type, financing equipment against itself | Your own estimate of the property’s value, or the contract price |
| Policy | A different lender, disclosing and arranging any tax debt, time, a cleaner account history | Stronger servicing or security. Policy is applied after both, not instead of them |
A longer term deserves one caution. It raises the servicing ceiling because each repayment is smaller, and it raises the total interest paid over the life of the loan. Whether that trade is worth making depends on what the borrowing is for. How the business is structured, company, trust or sole trader, also changes whose income and whose assets a lender counts, which is covered in borrowing through a trust or company.
How Intellect Finance can help
We work out all three ceilings on your actual figures before anything goes to a lender: the add-back schedule your accountant and we can both stand behind, the security position against the valuations lenders are likely to use, and the policy settings across 100+ lenders that decide whether the numbers are even the question. You see which ceiling binds and what moves it. We do not give tax advice, which belongs with your accountant, and we do not give legal advice on guarantees or mortgages, which belongs with your solicitor. If the loan you want does not work on any lender’s settings, we will tell you that before an application is lodged rather than after it is declined.
Business and commercial lending for a business purpose is not regulated consumer credit under the National Consumer Credit Protection Act 2009, and Best Interests Duty does not apply. We charge you nothing on any loan type, with no arrangement fee and no clawback recovery fee. Penrith based since 2005, holding Australian Credit Licence 390611. For business lending closer to home, see our business finance broker in Penrith page, or the full range on our commercial loans hub.
Read Intellect Finance’s Google reviews
Business owners, property investors and home buyers who have worked through their borrowing position with us.
These reviews reflect other clients’ experiences. They are not a promise of any particular outcome for your loan, which will always depend on your circumstances and the lender’s assessment.
Frequently Asked
Business Borrowing Capacity FAQs
The questions business owners ask most often before they apply.
How much can a business borrow based on turnover?
Turnover sets very little on its own. Some unsecured and online lenders use revenue-based rules of thumb for small facilities, but a secured business loan is sized on adjusted profit, the security offered and the lender’s policy limits, and the lender offers the lowest of the three. Two businesses with identical turnover can support very different loans.
What are add-backs on a business loan?
Add-backs are expenses a lender adds back to reported profit because they will not recur or do not cost the business cash. Depreciation, interest on existing debt, genuinely one-off costs and, on a premises purchase, rent that stops at settlement are common examples. Each needs evidence, and each lender decides which it accepts.
What is a debt service cover ratio?
A debt service cover ratio is adjusted earnings divided by total annual repayments on all business debt, principal and interest together. A ratio of 1.5 means earnings cover the repayments one and a half times. Each lender sets its own minimum, which varies with the industry, the security and the type of facility.
What is the difference between DSCR and ICR?
DSCR compares earnings with total repayments, principal and interest. ICR compares earnings with interest only. ICR is commonly used for investment property assessed on rent and for interest-only facilities, and DSCR for trading businesses repaying principal. The same business can pass one and fail the other, so it matters which test a lender applies.
Why is my borrowing capacity lower than my repayments suggest?
Because lenders test repayments at an assessment rate above the rate you would actually pay. For home loans, APRA expects banks to assess at least 3 percentage points above the loan rate. Business lending has no equivalent published buffer, so each lender sets its own, and a higher assessment rate means the same earnings support a smaller loan.
Can I use my home as security for a business loan?
Yes, and it is common in small business lending, particularly when the business’s own assets do not cover the loan. It also means the lender can sell your home if the business cannot repay. That makes it a decision about personal risk first, and a solicitor is the right person to explain the mortgage and any guarantee before you sign.
How many years of financials does a business need to borrow?
Full documentation business lending is commonly assessed on the 2 most recent years of financial statements and tax returns, alongside business bank statements. Some lenders will assess on 1 year, or on alternative evidence such as BAS statements and an accountant’s declaration under low documentation policies, usually on different terms. Requirements vary by lender and facility.
Does an ATO debt stop a business loan?
Not automatically, but it is one of the things that can override otherwise sound numbers. Lenders look at whether the debt is on a payment arrangement, whether that arrangement is being met, and what the repayments do to servicing. A tax debt disclosed at the start is far easier to work with than one that surfaces during assessment.
The bottom line
There is no single number for how much a business can borrow, and any calculator that gives you one from your turnover is answering a different question from the one a lender asks. A lender works out what your adjusted profit can service, what your security supports and what its own policy allows, and then lends the lowest of the three.
The practical consequence is that the most valuable thing to know before you apply is which ceiling binds. Businesses spend weeks polishing add-backs when security was the limit all along, or chase more security when the servicing test is what failed. Work out the binding ceiling first and the rest of the application organises itself around it.
The uncomfortable part is that for many small businesses the ceiling that binds is security, which turns the question from “how much can we borrow” into “what are we prepared to put behind it”. That is a question about personal risk as much as finance, and it deserves more thought than any rate.
Joseph Sukkar
Joseph founded Intellect Finance in Penrith in 2005 and has spent 25+ years in Australian finance, arranging commercial property, business and asset finance alongside home lending across 100+ lenders and 400+ products. Much of his commercial work starts exactly where this article does, with a business owner holding a number from a calculator and a lender working to a different one. Intellect Finance charges clients no fee on any loan type. More about the team.
Sources
Reserve Bank of Australia, Bulletin October 2025, Small Business Economic and Financial Conditions (Harvey, Lai and Spiller), for the share of SME credit that is unsecured remaining below 5% in recent years, and around half of small loans to SMEs being secured by assets other than residential property. rba.gov.au
Australian Prudential Regulation Authority, housing lending standards guidance to authorised deposit-taking institutions, for the serviceability buffer of at least 3 percentage points applied to home lending. apra.gov.au
Australian Securities and Investments Commission, Regulatory Guide 273 Mortgage brokers: Best interests duty, for the scope of Best Interests Duty, which applies to regulated consumer credit and not to business purpose lending. asic.gov.au
Important disclosures, general advice warning and licensing
General information only. This article is general information only and does not constitute financial, credit, legal or tax advice. It does not take your personal or financial circumstances into account. Before acting on any information here, consider whether it is appropriate to your objectives, financial situation and needs.
Illustrative figures. The worked example is hypothetical. The business, its profit, the add-backs, the property value, the 65% loan to value ratio, the minimum cover ratio of 1.5, the policy cap of 3.5 times earnings, the 20-year term and the 9% assessment rate are modelling assumptions chosen to make the arithmetic clear. The rate is not a quote, a forecast or any lender’s rate, and the ratios are not any lender’s policy. Substitute your own figures, and expect a lender’s assessment of them to differ.
Tax. Add-backs are a lending assessment, not a tax treatment. Intellect Finance is not a registered tax agent. Confirm anything touching the tax position of your business, including depreciation and owner remuneration, with your accountant.
Legal. Offering property as security, including your home, and signing a director’s guarantee create legal obligations that can result in the loss of that property. Obtain advice from a solicitor on any mortgage or guarantee before you sign it.
Regulatory settings. The APRA serviceability buffer is a prudential expectation on authorised deposit-taking institutions for home lending. It creates no entitlement for any borrower, does not apply to business lending, and can change. Reviewed 21 September 2026.
Financial difficulty. If tax debt or other debt is causing difficulty, free and independent financial counselling is available through the National Debt Helpline on 1800 007 007.
Lender policy varies and changes. Descriptions of common practice are general observations, not any lender’s policy. This page publishes no interest rates and names no lenders. No broker can guarantee approval, pricing, a valuation outcome or a timeframe.
Best Interests Duty. Business and commercial lending for a business purpose is not regulated consumer credit under the National Consumer Credit Protection Act 2009, and Best Interests Duty does not apply.
What we charge you. Nothing, on any loan type. No arrangement fee for residential, commercial, corporate, asset, SMSF or personal lending, no fee for complex or specialist lending, and no clawback recovery fee if a loan is discharged early. Lenders pay us a commission on settlement, disclosed to you in writing in our Credit Guide before we provide credit assistance.
About the reviews shown. The reviews displayed on this page are genuine reviews published by clients on Intellect Finance’s Google Business Profile, shown live via a third-party reviews widget. They reflect those individuals’ own experiences and are not a promise of any particular outcome.
Intellect Finance Pty Ltd holds Australian Credit Licence 390611 and is a member of the MFAA and AFCA. Lending criteria, fees and terms apply. Article checked 21 September 2026.
Next Reads
Where Each Ceiling Leads Next
Find Your Binding Ceiling
Bring 2 Years of Financials.
About 15 minutes. Bring your last 2 years of financial statements, what you want to borrow and what security you could offer, and we will show you which of the three ceilings binds and what moves it. If the loan does not work on any lender’s settings, we will tell you before anything is lodged. Penrith based since 2005, clients Australia-wide. No fee on any loan type. ACL 390611.
If money is causing you difficulty, free and independent financial counselling is available through the National Debt Helpline on 1800 007 007.
General information only. The worked example uses illustrative figures and modelling assumptions, not quotes. Business purpose lending is not regulated consumer credit. No broker can guarantee approval.
Intellect Finance Pty Ltd | Australian Credit Licence 390611 | MFAA Member | AFCA Member