Can you afford the repayments? How lenders check (and how you can too)

Every lender, big or small, is asking the same core question: can this business comfortably make the repayments? Lenders call it serviceability. You can call it “will this loan fit?” This lesson shows how they work it out, and how to test it yourself before anyone else does.

What is “ability to repay”, in one sentence?

It’s whether there’s enough money left over in your business, after everything else is paid, to cover a new repayment with room to spare.

business.gov.au suggests working out the maximum repayment you could afford before you apply. That’s exactly the right instinct.

What goes into the lender’s calculation?

Lenders build a simple picture of money in and money out:

Money in	Money out
Regular sales and customer payments	Rent, wages, super and suppliers
Card settlements and platform payouts	Existing loan and lease repayments
Other regular business income	Tax: GST, PAYG and any ATO payment plan
	What the owner draws to live on
	Insurance, utilities, software and other overheads

What’s left is the surplus. The new repayment has to fit inside that surplus, with some buffer left over. Unsecured loans lean especially hard on this, because there’s no property safety net. That’s why turnover and bank statements matter so much.

How can you test affordability yourself?

Here’s a friendly five-step method. Grab your last six months of business bank statements, or twelve if your business is seasonal.

1. Add up money in for each month. Leave out one-off transfers and loans from family.
2. Add up money out for each month, including tax payments and your own drawings.
3. Find the monthly surplus (money in minus money out).
4. Circle your worst month. That’s the one that matters most.
5. Subtract the new repayment from your worst month’s surplus. Is there still a buffer?

Illustrative example. A small bookkeeping practice has the following over six months. (Figures are made up to show the method.)

	Average month	Worst month
Money in	$38,000	$29,000
Money out (incl. tax and drawings)	$31,500	$27,200
Surplus	$6,500	$1,800
New monthly repayment	$2,400	$2,400
Left over	$4,100	−$600

On an average month, the loan looks easy. In the worst month, it doesn’t fit. Options might be a longer term (smaller repayments), a smaller amount, a structure that flexes with the seasons, or finding the cause of the weak month first. The lesson on repayments explains how term changes the repayment size.

Want someone to run this check with real numbers? Ask a real person. There’s no credit check to enquire.

What else changes the picture?

A few things can make a loan more or less affordable than the raw numbers suggest:

• What the loan does. If a new machine lets you take on more work, future income may rise. Lenders are usually cautious about counting income that hasn’t happened yet, so treat it as a bonus, not the plan.
• Existing debts. Every current loan, lease or card repayment reduces room for a new one. Consolidating can sometimes help.
• ATO debt. Tax owed competes for the same cash. It’s considered case by case and must be disclosed.
• Owner drawings. Understating what you need to live on doesn’t help anyone. Be realistic.
• Buffer. Lenders like to see headroom, and so should you. Life happens.

How do lenders treat new or growing businesses?

Growing businesses can have strong recent months and weaker older ones. If your income has been climbing, point that out and show the trend. If the business is newer, a lender may lean more on security or ask for a smaller starting amount. The lesson on new business loans covers this.

How can you improve affordability before applying?

business.gov.au lists several cash-flow levers worth a look:

• Get paid faster by tightening payment terms and chasing overdue invoices.
• Review costs, such as subscriptions you’ve forgotten or suppliers you could renegotiate.
• Manage stock so less cash sits on shelves.
• Check your pricing covers your costs properly.

Even small improvements in your worst month can change what a lender is comfortable with. A simple cash flow forecast helps you see those months coming.

Quick check: questions to ask yourself

Before any lender runs the numbers, try answering these honestly. They’re the same questions a careful lender will be asking in the background.

• If my best customer paid 30 days late, could I still make the repayment?
• If my slowest month from last year happened again next month, would the repayment fit?
• Have I included tax, super and my own drawings in “money out”?
• Do I know every regular repayment already coming out of the account?
• Will this loan help the business earn more, save more or avoid a bigger cost?

If you can answer all five comfortably, you’re thinking like a lender, which puts you in a strong position for the conversation that follows.

Want a second pair of eyes on the numbers?

Affordability is where many first-timers either over-reach or sell themselves short. A calm outside view helps.

Our enquiry takes about a minute. No credit check is involved in asking, and your details won’t be sprayed across multiple lenders. A real person looks at your income, costs and existing commitments, then talks you through an amount and structure that fits. Please enter your turnover and any existing debts accurately; that’s what makes the affordability conversation genuinely useful.

Check what repayments your business can carry →