Short answer
What matters first
Lenders work out what a business can repay by estimating the cash left after normal operating costs and existing commitments, then checking whether the new repayment fits inside it with a buffer. For small business loans, most of that evidence comes from recent bank statements: regular deposits, average balances, existing loan repayments, tax payments, dishonours and overdrawn days. Some lenders also use turnover-based limits, such as a fraction or small multiple of monthly revenue, as a cap. Banks and larger facilities may add financial statements and a debt service cover ratio. The practical test is simple: the proposed repayment should still be comfortable in a quieter month after wages, suppliers, rent, tax and every existing repayment are paid.
Detailed explanation
Serviceability is the lender's word for whether repayments are affordable. It is the most important part of most small business credit decisions, and it is something you can test yourself before applying.
This guide explains how lenders assess it and how to run the same check on your own numbers.
What serviceability means
Serviceability asks whether the business generates enough spare cash to meet a new repayment on time, every time, without strain. It is different from asking whether the business is profitable over a year: a profitable business can still struggle if repayments land before revenue does.
That is why repayment frequency matters as much as the amount. Daily or weekly repayments must be covered by the cash on hand at each collection.
What lenders read from bank statements
Most non-bank lenders analyse three to six months of business bank statements, often with automated tools. Common signals include the following.
- Total and average monthly deposits, excluding transfers and loan proceeds
- Average and lowest daily balances
- Existing loan repayments and their frequency
- Tax payments and any ATO arrangement
- Dishonours, overdrawn days and returned payments
- Large one-off deposits that may not repeat
Turnover limits and cover ratios
Many lenders cap unsecured funding relative to monthly revenue, as explained in our guide on funding based on turnover. A cap is a ceiling, not a target: the affordable amount may be lower.
Banks and larger facilities may also calculate a debt service cover ratio, comparing earnings available for debt with total debt repayments. A ratio comfortably above one means earnings more than cover repayments.
How to test a repayment yourself
Take your slowest recent month. Subtract wages, suppliers, rent, tax set-asides, existing repayments and owner drawings. What remains is the room a new repayment must fit into, with a buffer for surprises.
Use the business loan calculator to convert an offer into daily, weekly or monthly repayments and compare it with that room.
Illustrative serviceability check
A business banks about $80,000 a month and, after all costs and an existing loan, keeps around $6,000 in a typical month and $2,500 in its slowest. A new loan with weekly repayments of $1,200 adds about $5,200 a month, which fits a typical month but would leave the slowest month short. A smaller amount or a longer term may be more suitable.
The figures are illustrative only and do not represent a lender's formula.
Caveats
Each lender uses its own methods and may treat deposits, transfers and seasonal swings differently. An approval means a lender's policy was met, not that the repayment is comfortable for your business.
If the only way to make the numbers work is to borrow again later, revisit the amount, term or purpose before proceeding.
Frequently asked questions
Do lenders use turnover or profit to assess affordability?
Small business lenders often start with bank-statement turnover and cash flow. Banks and larger facilities also look at profit in financial statements.
Do existing loans reduce how much I can borrow?
Yes. Existing repayments reduce the cash available for a new one, and several short-term facilities can weigh heavily.
Can a longer term make a loan affordable?
A longer term lowers each repayment but usually increases total cost. Compare the total repayable as well as the repayment size.
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