Business Loan Borrowing Power Calculator

Business Cash Flow and Debt Service

Business borrowing capacity starts with maintainable cash flow available for debt repayments. Turnover includes money the business needs for operating costs. Enter cash flow after those costs, tax and cash reserves, before any debt service.

Existing annual debt service includes principal and interest on commitments that remain. If the proposed loan refinances a debt in full, leave that replaced debt out. The model subtracts existing service once, after applying your chosen coverage target.

Correct example: enter $150,000 before debt service, with $40,000 of existing repayments. Incorrect example: enter $110,000 after existing repayments, then subtract the same $40,000 again. That counts the existing debt twice.

Debt Service Coverage and Loan Size

Available new annual debt service equals maintainable cash flow divided by your chosen coverage target, less existing annual service. A negative result supports no new loan. The calculator shows the shortfall against the chosen target when existing commitments already exceed that budget.

In the hypothetical starting example, $150,000 divided by 1.5 gives a $100,000 total annual service budget. Subtract $40,000 of existing repayments to leave $60,000 annually, or $5,000 monthly. At 8% over five years without a balloon, that supports about $246,592.

For monthly repayment A, monthly rate r, term n months and balloon fraction b, loan capacity is A × (1 - (1 + r)^-n) / r / (1 - b × (1 + r)^-n). At zero interest it is A × n / (1 - b). Calculations retain full precision, with loan and balloon amounts rounded to cents.

A balloon raises the initial loan supported by the same regular payments. It also creates an extra final payment. With zero interest and a 20% balloon, the example supports $375,000, including a $75,000 balloon. Maturity-year debt service cover falls to 0.86 times if cash flow stays $150,000.

The Business Development Bank of Canada's explanation of debt service coverage includes principal and interest in the denominator. This calculator uses your entered maintainable cash flow as its numerator. The chosen coverage ratio is your assumption.

Business Loan Approval and Model Limits

A business loan borrowing power estimate measures the payments supported by entered cash flow. It does not assess security or credit history. A lender also decides which earnings, add-backs and forecasts it accepts.

The term comparison keeps cash flow and interest constant. Longer terms support a larger opening balance but keep the debt outstanding longer. Monthly modelling also smooths seasonal cash flow, which can hide a shortage during a quiet trading period.

A loan with a balloon needs a separate repayment plan for that amount. The maturity-year ratio assumes the same annual cash flow and existing commitments in the final year. It does not assume an asset sale or successful refinancing.

Interest Coverage and Debt Service

Interest coverage measures operating earnings against interest expense. This model uses earnings before interest and tax, divided by existing annual interest plus the proposed loan's first-year interest. Principal repayments belong in debt service coverage and are excluded from interest coverage.

The starting proposed loan incurs about $18,217 in first-year interest. Add $30,000 of existing interest to reach $48,217. With $120,000 of operating earnings, interest coverage is 2.49 times.

For a separate zero-rate example, $120,000 of earnings divided by $30,000 of existing interest gives four times interest cover. Regular debt service cover remains 1.5 times because it also counts principal. With no interest expense, interest cover is not applicable. A loss produces a negative ratio.