What Debt Can Your Business Afford?

Introduction

Debt has a bad reputation — but applied strategically, it's leverage for business expansion. The challenge is finding sustainable levels that protect financial stability.

What Do We Mean by Debt Affordability?

Your capacity to take on and repay debt comfortably. It requires looking at current financial condition, future cash flows and creditor relationships.

1. Your Current Financial Situation

• DSCR — aim above 1.5 for a safety cushion.
• Debt-to-Equity — agriculture/manufacturing tolerate up to 2:1; services should stay below 1.5:1.
• Debt-to-Assets — total liabilities ÷ total assets.

Guidance:

• Start with manageable first loans to build credibility.
• Keep repayments between 30–40% of monthly operating profit.
• Monitor ratios through updated management accounts.

2. Your Future Cash Flow

• Build detailed cash-flow forecasts before committing.
• Match repayment structure to revenue timing.
• Maintain reserve buffers for client payment delays.

3. Your Creditworthiness

• Never miss a repayment — communicate early if needed.
• Separate personal and business accounts.
• Review your credit report annually.

Building Affordability Step by Step

• Start small to build a track record.
• Understand impact on suppliers, salaries, owner drawings.
• Scale gradually as the business grows.
• Use strategically — for revenue-generating investments, not recurring losses.

Final Word

Debt is not the enemy — mismanaged debt is.