Business Funding: How Much Can I Borrow?
Expanding your business can be challenging if you still have other financial commitments to cover. After all, your business’ income might not be enough. As such, you might be considering taking out a loan.
However, you might be wondering, “How much can I borrow?” You can use a borrowing power calculator, but it may also be prudent to understand how that power is determined. Keep reading to understand more about your borrowing capacity.
Determining How Much You Can Borrow
“How much can I borrow?” is a common concern since many factors can affect your borrowing power.
- Business revenue and expenses – Of course, your business may be able to comfortably afford a loan since lenders only want to give loans to those with little risk of defaulting. As such, you’ll need to meet their income requirements. This will also be used as the basis of the loan term that the lender will offer.
- Credit history – You’ll need to reach certain credit assessment criteria since the higher your credit score, the safer lenders will feel in approving you for a loan.
- Assets and liabilities – Significant assets like investment property can give you greater borrowing power. However, liabilities (like other debts) might counterbalance how much you could borrow. They may even result in higher fees.
- Loan type – Unsecured loans tend to have lower loan amounts and higher interest rates. Meanwhile, secured loans can give you funds according to your security property value. You can get a higher loan and lower rates, but that’s because the provider has the right to keep your asset if you can’t pay back your loan.
Admittedly, it can be hard to know exactly how much you’ll be able to borrow before applying for a loan. However, lenders with an Australian Credit Licence, like Lumi, have a business loan calculator you can use to give you an estimate.
This calculator will estimate how much you’ll be able to borrow based on what you input.
It serves only as a guide since loan repayments in online examples may be based on the lowest interest rate of that particular provider, which can be a fixed rate.
For a really quick and basic self-assessment, subtract your expenses from financial commitments from your business income.
Establish Your Borrowing Capacity
It’s actually possible to increase your borrowing power. Some things you can do are:
- Improve your credit rating – Repay debts on time and lower limits on credit cards. Lenders will see that you can be responsible with regards to making your monthly repayments.
- Opt for secured loans – Providing an asset as security can make your lender reconsider loaning you a higher amount at a better rate.
- Find a guarantor or provide a personal guarantee – Lenders may be more willing to approve larger sums if there’s a guarantee that you’ll repay the loan regardless of your or your guarantor’s personal circumstances. A guarantee works the same way as collateral does. However, the guarantor must be in a position to repay the loan.
- Free up available funds – This can be hard to do, but it can increase your net income, which lenders may take as you being more capable of repaying the loan.
The answer to “How much can I borrow?” can be subject to change according to things like your loan type and other income your business can receive.
Importance of Securing Business Funding
Here are some of the most common reasons a small business might want to consider taking out a business loan:
- Working capital
- Purchasing business assets
- Growing the business
- Hiring new staff
- Marketing and Advertising
- Purchasing more or discounted inventory
- Upgrading business assets such as machinery
So, when answering the question, “How much can I borrow?” you should consider what aspects of your business you want it to cover.
This is also so you can present the loan purpose if lenders ask for it. Depending on how you’re using the money, you can explain why you need your asking amount.
FAQs
Understanding your borrowing capacity can feel overwhelming. After all, it can involve variable interest rates that can be subject to change.
On top of that, you should also ensure you can pay back the principal and interest repayments — including other applicable fees and charges.
How Much Can I Borrow for a Business Loan in Australia?
How much you can borrow will differ from lender to lender. With Lumi, you can borrow between $5,000 and $500,000.
However, there are other factors that can affect your borrowing capacity.
So, when wondering, “How much can I borrow?” consider your complete financial position — such as your credit history, business revenue, expenses and assets.
Lenders will use these to determine your loan amount, interest rate and terms.
What Is Borrowing Power?
Borrowing power, or borrowing capacity, is the maximum amount you can borrow without having trouble making your loan repayments.
You can use a borrowing power calculator to provide an estimate of your borrowing capacity. You’ll be required to input your financial commitments, and it relies on information from third parties.
As such, it’s still ideal to reach out to lenders like Lumi to get a more accurate idea of your borrowing power.
After all, interest rates & fees might differ per lender. Your rate will usually depend on the amount and terms involved in your loan.
In addition, costs such as fee waivers, cost savings, early repayment fees, or redraw fees will need to be included in your estimate for your borrowing capacity.
Conclusion
Now that we’ve covered the question, “How much can I borrow?” you may be in a better position to decide whether a loan is a good idea. A borrowing power calculator can give you a general idea of how much you’ll be able to borrow.
However, it’s ideal to still ask lenders with an Australian Credit Licence for quotes. After all, your borrowing capacity, interest rate, and loan repayments depend on factors like your business income and asset (like property) value.
Lenders can get you started for pre-approval if you give them complete and accurate details about your financial commitments and other income, if applicable.
