Business Loan Affordability Calculator
Calculate your affordable loan size
Enter monthly revenue, operating expenses, and loan terms to find the maximum monthly payment and total loan size your business can support at a 1.25x DSCR.
How lenders assess business loan affordability
Before approving a business loan, lenders assess whether your business generates enough cash flow to comfortably service the debt. The most common metric they use is the Debt Service Coverage Ratio, or DSCR. This ratio compares your net operating income to your total annual debt payments, including both principal and interest. Most commercial lenders require a minimum DSCR of 1.25x, meaning your net income must be at least 25 percent more than your total debt payments.
A DSCR of exactly 1.0x means every dollar of profit goes directly to debt repayment, leaving no buffer for unexpected costs, seasonal revenue dips, or growth investment. Lenders see this as too risky. A ratio of 1.25x leaves a reasonable cushion while still allowing significant borrowing. Some lenders, particularly for riskier or unsecured loans, require 1.5x or higher.
This calculator works backwards from your DSCR requirement to find your maximum affordable monthly debt payment, then uses that payment to calculate the maximum loan size you can support at a given interest rate and term. This gives you a realistic ceiling before you approach lenders, helping you request the right amount and avoid the disappointment of applying for more than your financials can support.
What counts as operating expenses?
For DSCR purposes, operating expenses include all regular costs of running the business except debt payments themselves. This includes payroll, rent, utilities, cost of goods sold, marketing, insurance, and software. It does not include capital expenditure, owner distributions, or one-off exceptional costs. If you already have existing debt payments, these should also be factored into the affordability assessment, as lenders look at total debt service, not just the new loan you are applying for.
How can I increase my affordable loan size?
There are three levers: increase revenue, reduce operating expenses, or choose a longer loan term. A longer term lowers the monthly payment required to repay a given loan amount, which means your existing monthly profit can support a larger total loan. However, a longer term also means more total interest paid over the life of the loan. Reducing non-essential expenses improves your net operating income and directly increases your borrowing capacity.
Do all lenders use 1.25x DSCR?
Most commercial bank lenders use 1.25x as their minimum threshold, but it is not universal. SBA 7(a) loans typically require 1.25x. Real estate commercial loans often require 1.25 to 1.30x. Alternative and online lenders may have lower or higher requirements depending on their risk appetite and the collateral offered. Understanding the DSCR a specific lender requires helps you prepare the right financial documentation before applying.
