How Much Can I Borrow?

Learn about how to work out the amount your business may be eligible to borrow before you apply.

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, updated on September 4th, 2023       

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Business loans are a valuable source of finance for businesses around Australia, providing them with lump sums upfront to be used for a variety of purposes. However, it’s important to ask yourself the question “How much can I borrow on my business loan?” You can learn about how to work out your business' borrowing potential right here in Savvy's handy guide.

How do I work out how much I can borrow for my business loan?

The reality is that it’s almost impossible for businesses to determine what they can borrow before applying for a small business loan. There are a variety of factors that go into determining your business’ borrowing power, however, so you should be acutely aware of these before you commence the application process. This gives you the ability to reflect on your own ability to borrow before having your borrowing power determined by your online lender. Some of the most important factors that go into determining your borrowing power include:

Your business’ revenue and expenses

First and foremost, your business is only capable of taking on a loan that can be comfortably repaid based on its monthly turnover. This will form the basis of the loan terms you’re offered by your lender, as they’ll be set on only providing loans which present as little risk of default as possible.

As such, you should calculate the available funds you have to work with by subtracting your business’ expenses from its revenue to give you an initial rough idea. These may range from rent to staff salaries to stock purchase and anything in between. It’s crucial you only apply within your means, particularly if you need the money fast, as asking for too much will delay the approval process.

Your credit scores

Lenders will look to your business’ credit score as a reflection of its ability to take on and repay debt. This number is formed by credit reporting across your trading history, ranging from repaying debts to simply covering your bills on time and in full consistently.

Businesses with higher credit scores are considered safer to lend to and may be able to borrow more as a result. If your business is still in its infancy, your lender may look to your credit score and those of its other directors as part of the process.

Your assets and liabilities

As part of your business’ application, your lender will also want to see your current assets and liabilities, as these will help inform their decision on how much your borrowing power may be. Businesses who own significant assets such as commercial property, vehicles, machinery and other equipment will carry a greater borrowing potential than those who don’t.

Additionally, liabilities such as outstanding loan debts on your assets are likely to counterbalance the amount you can receive from your lender, as your available funds can’t be entirely taken up by debts in the event your revenue stream reduces.

Your business’ standing and projected growth

Businesses that are well-established and have traded comfortably over an extended period are likely to be eligible to borrow more than small businesses still in their opening 12 months. This is because they’re seen as considerably safer, given that as many as one-third of all new small businesses fail inside a year in Australia. While this doesn’t mean you can’t borrow a large sum if you’ve been trading for between six and 12 months, longer-running businesses with consistent cashflow are more likely to be approved.

Lenders will also consider the potential for growth in your business. For larger loan sums (typically those of $250,000 or more), you’ll be required to provide a business plan which explains your expected earnings over the coming years. Those which can clearly demonstrate substantial growth are likely to be approved for more.

The type of loan you choose

Of course, loan types in themselves will go a long way towards deciding what your borrowing power will be. If you opt for an unsecured business loan, the absolute maximum you’ll be able to borrow will be around $500,000, with amounts as low as $5,000 available also. This differs between lenders, though, so you can compare different offers all in one place right here with Savvy.

However, business loans secured by an asset such as property or valuable equipment can open you up to loans in the millions of dollars. While the same checks will still apply in terms of only sticking to amounts your business is capable of borrowing, providing security can boost the potential size of your loan significantly.

Top tips for increasing your business’ borrowing power

Work on your credit rating

If your business’ credit rating isn’t perfect, there are methods for increasing it before you apply for finance. Continuing to repay debts on time and lowering limits on credit cards will go a long way towards improving both business and personal credit scores, so these can help you improve your borrowing capacity.

Guarantee your loan

By finding a guarantor or providing a personal guarantee to repay the loan debt, your lender may be more willing to approve larger sums. Guarantees provide a safety blanket for lenders in the same way asset collateral does, giving them more confidence the amount will be repaid. You or your guarantor must be in a position to repay the loan if you’re required to, though.

Provide loan security

By putting up an asset as collateral for the loan, your lender will be far more willing to approve larger amounts. This is because the security you provide acts as a ‘break glass in case of emergency’ contingency plan on the off chance your business is unable to support repayments, which isn’t present with unsecured loans.

Free up available funds

It may be difficult to increase your business’ available cash but doing so can substantially improve your borrowing power. Whether that be paying out existing liabilities on assets or cutting costs where you can around the business, though, you should always prioritise your business’ health above all else.

Common questions about how much your business can borrow answered

What costs will I need to budget for?

There are several costs which require budgeting when taking on a business loan, which you can compare right here with Savvy, including:

  • Interest: are usually fixed term rates and are set based on risk
  • Application fee: charged at the start of the loan (up to 3% of your loan amount)
  • Monthly fees: a small fee each month, typically $5 to $15
  • Early repayment fee: charged on some loans, dependent on size of loan and time left to run
Will repaying my loan boost my borrowing power in the future?

It can – paying off your business loan without a hitch will help your credit score grow across your loan term, which can put you in a better position to take out another larger loan should you need to in the future.

Is reducing my borrowing amount beneficial?

Yes – by reducing the amount you’re borrowing on your small business loan and using some of your business’ available funds, you’re reducing the level of risk your lender feels by cutting down on the potential money they could lose if you default. This can open you up to a lower interest rate, saving you hundreds overall (if not more). For example, a $20,000 loan at 10% p.a. over 12 months would cost you $1,100 in interest overall, but reducing that amount to a loan of $10,000 would halve the interest your business is required to pay at $550.

Can I borrow more with invoice finance?

You could have access to more funds if you opt for invoice factoring. This involves selling your invoices to a financier, who provides you with up to 95% of their value up front and chases up your clients for payment, delivering the remaining amount minus fees once they’ve paid. Because the amount is tied to the value of your invoices, rather than your business’ cashflow, you may find you can access more funds this way.

How much can I borrow to buy a business?

How much you can borrow to buy a business will vary depending on the factors discussed above. However, your lender will also assess at least two years of financials for both your current business and the one you’re looking to purchase. Lenders may be more willing to approve larger sums if the business is successful, as well as if you have a strong history of running businesses successfully and boast transferrable skills (such as a chef looking to take over a restaurant with a loan).

How much can I borrow to buy commercial property?

In general, purchasing property with a commercial loan can enable you to borrow up to 70% of its value, meaning you’ll be required to produce a 30% upfront deposit. Lender’s Mortgage Insurance (LMI) also isn’t accessible with this type of finance, so you’ll need to come up with the full deposit. The same principles apply otherwise, such as only being able to take out what you can repay.

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Whether you need a small unsecured loan to boost your cash flow or a larger, secured deal to purchase equipment, you can compare a range of competitive online offers through us before you sign on the dotted line.