Borrowing Capacity
Borrowing Capacity is the maximum amount a business can safely borrow based on its cashflow, existing liabilities, financial history, and repayment strength. Lenders calculate borrowing capacity when assessing Business Loans, Working Capital Loans, Business Line of Credit, and Equipment Finance. Related terms: Servicing, Affordability, Cash Flow Forecast. Helpful hub: Business Owners Finance Hub.
Why Borrowing Capacity Matters
Borrowing Capacity protects both the lender and the business by ensuring the loan amount won’t strain cashflow. A strong capacity leads to easier approvals, better rates, and higher credit confidence.
- Defines how much a business can safely borrow
- Ensures loan repayments fit within cashflow
- Prevents over-leveraging and financial stress
- Improves approval outcomes and loan terms
- Key component in business expansion planning
For a deeper dive into how borrowing capacity fits into your overall cashflow strategy, see our Business Cashflow System guide covering Working Capital Loans, Business Lines of Credit, and Invoice Finance.
How Borrowing Capacity Works
- Lenders review bank statements, BAS, revenue, and expenses
- Existing debts and liabilities are assessed
- A servicing ratio is calculated (income vs repayments)
- Cashflow projections influence borrowing limits
- Seasonal variance is considered for certain industries
Borrowing Capacity is especially important when applying for Invoice Finance or Working Capital Loans, where cashflow timing drives loan structure.
Official reference: business.gov.au