The amount you can borrow and the amount you should borrow are two different numbers. Lenders decide the first one based on your financials. You should decide the second based on what your business can comfortably repay without straining operations.
Borrowing too little means you might come back for a second loan at worse terms. Borrowing too much means monthly payments eat into cash flow you need for payroll, inventory, and growth. This guide walks through both sides so you can land on a number that works.
How Lenders Calculate Your Maximum Loan Amount
Before a lender tells you how much you can borrow, they calculate your Debt Service Coverage Ratio (DSCR). This ratio measures whether your business generates enough income to cover loan payments.
The formula: Net Operating Income / Total Monthly Debt Payments = DSCR
Most lenders want to see a DSCR of at least 1.25. That means your business earns $1.25 for every $1.00 in debt payments. Some online lenders accept a DSCR as low as 1.0, while SBA and bank lenders typically require 1.25 or higher.
Example: Your business has a monthly net operating income (revenue minus operating expenses, before debt payments) of $20,000. At a 1.25 DSCR requirement, the maximum total monthly debt payment a lender would approve is $16,000. If you already have $4,000 in existing monthly loan payments, you'd qualify for up to $12,000 in new monthly payments.
Check your DSCR with our DSCR calculator to see what lenders will see when they review your application.
The Payment Budget Approach
Instead of starting with how much you can borrow, start with how much you can comfortably pay each month.
Step 1: Calculate your average monthly gross revenue over the last 6-12 months.
Step 2: Subtract all fixed monthly expenses: rent, payroll, utilities, insurance, inventory, existing loan payments, and other recurring costs.
Step 3: The remainder is your maximum debt service capacity. But "maximum" doesn't mean "recommended."
The 25% guideline: Total loan payments (including any new loan) generally shouldn't exceed 25% of gross monthly revenue. For businesses with tight margins (restaurants, retail), 15-20% is safer. For high-margin businesses (consulting, SaaS), 30% may be manageable.
| Monthly Revenue | 15% Budget | 20% Budget | 25% Budget | |----------------|------------|------------|------------| | $30,000 | $4,500 | $6,000 | $7,500 | | $50,000 | $7,500 | $10,000 | $12,500 | | $100,000 | $15,000 | $20,000 | $25,000 | | $200,000 | $30,000 | $40,000 | $50,000 |
Use our loan affordability calculator to reverse-engineer exactly how much loan your monthly payment budget supports at different rates and terms.
How Rate and Term Affect What You Can Borrow
The same monthly payment buys very different loan amounts depending on the interest rate and term length.
| Monthly Payment | Rate | Term | Loan Amount | |----------------|------|------|-------------| | $2,000 | 10% | 3 years | $62,100 | | $2,000 | 10% | 5 years | $94,700 | | $2,000 | 15% | 3 years | $58,500 | | $2,000 | 15% | 5 years | $84,600 | | $2,000 | 20% | 3 years | $55,200 | | $2,000 | 20% | 5 years | $76,000 |
Two takeaways from this table:
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Lower rates dramatically increase borrowing power. At $2,000/month, the difference between 10% and 20% is nearly $19,000 on a 5-year loan.
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Longer terms increase borrowing power but cost more total. A 5-year loan at 10% lets you borrow $94,700 vs $62,100 on a 3-year term. But you'll pay significantly more in total interest.
See exactly how rates and terms affect your payment with our loan payment calculator.
Five Factors That Determine Your Loan Amount
Beyond what you can afford, these five factors determine what lenders will offer you.
1. Credit Score
Your credit score is the single biggest factor in your interest rate, and rate determines how much loan your payment budget supports. Higher credit scores qualify for lower rates, which means higher borrowing power.
| Credit Score | Typical Rate Range | $2,000/mo Buys (5-yr) | |-------------|-------------------|----------------------| | 720+ | 8-12% | $90,000-$100,000 | | 680-719 | 12-18% | $78,000-$90,000 | | 620-679 | 18-25% | $65,000-$78,000 | | Below 620 | 25%+ or factor rate | Under $65,000 |
2. Time in Business
Lenders view time in business as a proxy for stability. Under 2 years limits you to online lenders, MCAs, and factoring. Over 2 years opens up SBA loans and bank products with better terms and higher limits.
3. Annual Revenue
Most lenders cap loan amounts at 10-33% of annual revenue. A business generating $500,000 in annual revenue might qualify for $50,000 to $165,000 depending on the lender and loan type. Revenue-based lenders typically cap advances at 1-1.5x monthly revenue.
4. Existing Debt
Current loan payments reduce how much new debt you can take on. Lenders look at your total debt picture, not just the new loan in isolation. Paying off smaller debts before applying can increase your new loan capacity.
5. Collateral
Secured loans (where you pledge assets like equipment, real estate, or inventory) typically offer higher loan amounts than unsecured products. The collateral reduces the lender's risk, allowing them to extend more credit at lower rates. Equipment financing and asset-backed loans are common examples.
How Much Should You Actually Borrow?
Qualifying for a large loan doesn't mean you should take it all.
Borrow for a specific purpose with measurable ROI. "I need $75,000 to purchase equipment that will increase production capacity by 40%" is a solid reason. "I want $200,000 as a safety net" is not.
Add a 10-15% buffer. Projects almost always cost more than estimated. If you need $80,000 for a buildout, borrow $88,000-$92,000 to avoid running short and needing a second, more expensive loan.
Don't borrow the maximum just because you can. A larger loan means larger monthly payments for the entire loan term, even if you only needed half the amount.
Consider the danger of underborrowing. Coming back for a second loan 3 months later is harder and more expensive than borrowing enough the first time. The application process starts over, and some lenders won't approve a second loan while the first is still active.
Match the loan term to the asset's useful life. If you're buying equipment that will last 5 years, a 5-year loan makes sense. Don't take a 7-year loan for something that needs replacing in 3 years.
Frequently Asked Questions
How much of a business loan can I get with a 650 credit score?
With a 650 credit score, you can typically qualify for online term loans up to $250,000 and some SBA loans if your other financials are strong. Interest rates will be in the 15-25% range for online lenders. Your revenue, time in business, and existing debt matter as much as the credit score itself.
What percentage of revenue can I borrow as a business loan?
Most lenders cap loan amounts at 10-33% of annual revenue. Online lenders and MCAs tend to offer up to 100-150% of monthly revenue for shorter-term products. SBA and bank lenders typically allow higher total amounts but look more carefully at your ability to service the debt through DSCR analysis.
Does my personal income affect business loan approval?
Yes, for small businesses. Most lenders check personal income through personal tax returns, especially for sole proprietors and businesses under $1 million in revenue. Your personal income contributes to the overall picture of repayment ability. Some SBA and bank loans include personal income in their DSCR calculation.
Can I get a business loan with existing debt?
Yes, as long as your total debt service remains within acceptable DSCR ratios. Existing debt reduces how much new debt you can take on. If your DSCR with existing payments is 1.5, you have room for more. If it's already 1.1, you'll need to pay down current debt or increase revenue before adding a new loan.
How do I know if I'm borrowing too much?
Two warning signs: (1) the monthly payment would exceed 25-30% of your gross revenue, and (2) you don't have a clear plan for how the borrowed funds will generate enough return to cover the repayment plus profit. If both of those are true, you're borrowing too much or borrowing for the wrong reason.
Ready to see what you qualify for? Get your options with no credit impact.