UK business loan affordability calculator: turnover and free cash flow caps
UK SMB lenders cap unsecured term loans at 25 to 30 percent of trailing 12-month turnover, and require monthly repayment to stay within 30 to 40 percent of free cash flow. The lower of the two caps is the binding constraint. This page works through both at three turnover bands.
What this calculates
Loan affordability on UK SMB underwriting models is two checks in series. First, the turnover cap: total committed debt principal divided by trailing 12-month turnover. Mainstream lenders set 25 to 30 percent as the upper band for unsecured lending. Second, the free cash flow cap: monthly debt service divided by monthly free cash flow. Mainstream lenders set 30 to 40 percent as the upper band. The lower of the two caps tells you the maximum sustainable loan size before lenders move you to specialist routes, asset-backed structures or scheme-backed wrappers.
The maths in plain English
The turnover cap. Trailing 12-month turnover times 25 to 30 percent equals the upper band of total committed debt principal the business can sustain. If the business already has £20,000 of existing debt principal, the proposed new loan can be up to (cap minus existing). On £500,000 turnover, the 25 to 30 percent band is £125,000 to £150,000. With £20,000 of existing debt, the proposed new loan is £105,000 to £130,000.
The free cash flow cap. Monthly free cash flow times 30 to 40 percent equals the upper band of monthly debt service the business can sustain. Multiply that by the proposed term to find total debt service. If monthly free cash flow is £15,000, the 30 to 40 percent cap is £4,500 to £6,000 of monthly debt service. Over a 5-year term that is £270,000 to £360,000 of total debt service. Back-solve from a typical UK SMB term-loan APR (8 to 14 percent) to find the principal that fits.
The lower binds. The constraint is whichever cap produces the lower number. Most service and trading businesses have a binding turnover cap (FCF margin is high enough to clear the FCF cap easily). Low-margin retail and hospitality often have a binding FCF cap (turnover supports more debt than the cashflow can service).
Worked example: £250,000 turnover, professional services
Trading Ltd has £250,000 trailing 12-month turnover. Operating profit £80,000. Add back depreciation £5,000. Subtract Corporation Tax £20,000. Subtract net working-capital movement £5,000. No material capex. Free cash flow is £60,000 annually, £5,000 monthly.
Turnover cap. 25 to 30 percent of £250,000 is £62,500 to £75,000. Existing debt principal is zero. Proposed new loan can be up to £62,500 to £75,000.
FCF cap. 30 to 40 percent of £5,000 monthly FCF is £1,500 to £2,000 monthly debt service. Over 5 years at 10 percent APR that supports a principal of around £70,000 to £94,000.
Result. Turnover cap binds at £62,500 to £75,000. Mainstream lenders (Funding Circle, iwoca) engage in this band on standard terms.
Worked example: £900,000 turnover, retail
Trading Ltd has £900,000 trailing 12-month turnover. Operating profit £85,000 (low retail margin). Add back depreciation £20,000. Subtract Corporation Tax £21,000. Subtract net working-capital movement £15,000 (growing stock). Subtract essential replacement capex £5,000. Free cash flow is £64,000 annually, £5,300 monthly. Existing asset-finance contracts service at £1,800 monthly.
Turnover cap. 25 to 30 percent of £900,000 is £225,000 to £270,000. Existing asset-finance principal say £40,000 outstanding. Proposed new loan can be up to £185,000 to £230,000 on the turnover view.
FCF cap. 30 to 40 percent of £5,300 is £1,590 to £2,120 monthly debt service. Existing asset-finance is already £1,800. Headroom for new debt service is roughly minus £210 to plus £320 monthly. Mainstream lenders cannot stack new debt on a 5-year term at any meaningful principal without breaching the FCF cap.
Result. FCF cap binds heavily. Turnover cap suggests up to £230,000 but FCF cap supports closer to £15,000 to £25,000 of new principal at typical APRs. The mainstream answer is to refinance existing asset finance onto a longer term first, free up FCF, then apply for new principal. The faster answer is asset-backed: secure against retail premises or stock to unlock principal regardless of FCF cap.
Worked example: £2.5m turnover, manufacturing
Trading Ltd has £2,500,000 trailing 12-month turnover. Operating profit £325,000. Add back depreciation £80,000. Subtract Corporation Tax £80,000. Subtract net working-capital movement £30,000. Subtract essential capex £40,000. Free cash flow is £255,000 annually, £21,250 monthly. Existing term-loan service £8,000 monthly.
Turnover cap. 25 to 30 percent of £2,500,000 is £625,000 to £750,000. Existing term-loan principal £180,000. Proposed new loan can be up to £445,000 to £570,000 on the turnover view.
FCF cap. 30 to 40 percent of £21,250 is £6,375 to £8,500 monthly debt service. Existing service £8,000. Headroom for new debt service is minus £1,625 to plus £500 monthly. Same problem as the retail example: existing service is using most of the FCF cap.
Result. Refinance route is viable: combine existing £180k plus new £200k onto a single £380k facility on a longer term to drop blended monthly service. Asset-backed route is also viable: secure against plant and machinery to free the unsecured cap. Both routes are within mainstream lender appetite at this turnover band; Allica Bank and OakNorth are the standard reference points.
| Business | Turnover | Monthly FCF | Turnover cap (25 to 30%) | FCF cap (monthly debt service) | Binding cap result |
|---|---|---|---|---|---|
| Professional services | £250,000 | £5,000 | £62,500 to £75,000 | £1,500 to £2,000 | Turnover cap binds at £62,500 to £75,000 |
| Retail | £900,000 | £5,300 | £225,000 to £270,000 | £1,590 to £2,120 (less £1,800 existing) | FCF cap binds: around £15,000 to £25,000 new principal |
| Manufacturing | £2,500,000 | £21,250 | £625,000 to £750,000 | £6,375 to £8,500 (less £8,000 existing) | FCF cap binds: refinance or asset-backed route |
Source: BestBusinessLoans affordability worked examples, base 25 to 30% turnover cap and 30 to 40% free cash flow cap
Figures as worked on this page. The lower of the two caps is always the binding constraint.
View as plain-text Markdown
### Worked examples: turnover cap vs free cash flow cap by business type | Business | Turnover | Monthly FCF | Turnover cap (25 to 30%) | FCF cap (monthly debt service) | Binding cap result | | --- | --- | --- | --- | --- | --- | | Professional services | £250,000 | £5,000 | £62,500 to £75,000 | £1,500 to £2,000 | Turnover cap binds at £62,500 to £75,000 | | Retail | £900,000 | £5,300 | £225,000 to £270,000 | £1,590 to £2,120 (less £1,800 existing) | FCF cap binds: around £15,000 to £25,000 new principal | | Manufacturing | £2,500,000 | £21,250 | £625,000 to £750,000 | £6,375 to £8,500 (less £8,000 existing) | FCF cap binds: refinance or asset-backed route | Source: BestBusinessLoans affordability worked examples, base 25 to 30% turnover cap and 30 to 40% free cash flow cap Figures as worked on this page. The lower of the two caps is always the binding constraint.
“The turnover cap is the number most applicants fixate on, but for low-margin retail and hospitality it is almost never the one that binds. Existing debt service quietly eats the free cash flow cap first, so a business that looks like it can borrow £230,000 on turnover may only support £15,000 to £25,000 of new principal. Test the free cash flow cap with your existing commitments included before you write the application, not after a lender declines and costs you a hard search.”
When this number matters
The cap calculation matters most before you write the application. Applying for a number above the binding cap leaves the lender to decline (which costs you a hard search) or counter at a smaller principal (which costs you a wasted month). Applying at or below the binding cap puts the application in mainstream territory and tightens pricing.
The cap also matters when stacking facilities. The total of every committed debt principal counts against the turnover cap. The total of every monthly debt service counts against the FCF cap. Each new facility uses cap headroom; the cumulative position is what underwriting tests, not the marginal new facility alone.
Edge cases
Pre-revenue and sub-12-month-trading. No trailing turnover, so the turnover cap is uncalculable. Mainstream lenders decline. Routes: British Business Bank Start Up Loan up to £25,000, Growth Guarantee Scheme via accredited lenders for larger, see first-year trading guide.
Recurring-revenue businesses. SaaS and subscription models with high contracted revenue can argue for higher caps based on annualised recurring revenue (ARR) rather than filed turnover. Some specialist lenders engage with this argument; mainstream UK SMB lenders generally do not.
Asset-rich, low-turnover. Holdco structures with significant property assets and modest trading turnover should not be capped against turnover. Asset-backed lenders cap against LTV of the secured asset; the trading numbers are corroboration.
Director-loan-account drawings. Drawings to clear an overdrawn DLA do not count as debt service in the conventional sense but do consume cash. Build the drawings plan into the FCF cap calculation. The overdrawn DLA guide covers the S455 implications.
Holdco vs trading-co. Lenders apply caps at the borrower level. A holdco with no trading turnover cannot pass the turnover cap on its own; group consolidation or a trading-co borrower with intercompany onlending changes the picture. See holdco vs trading-co loan structures.
FAQ
Why 25 to 30 percent of turnover?
It is a long-standing UK SMB underwriting heuristic that approximates a sustainable debt-to-revenue ratio for most service and trading businesses. Above that band, debt service risks crowding out reinvestment, tax and owner remuneration. Below 25 percent is comfortable; above 30 percent is the band where lenders look for stronger trading evidence, asset cover or a Growth Guarantee Scheme wrapper.
Why 30 to 40 percent of free cash flow?
Free cash flow (FCF) is what is genuinely available to service debt after tax, working-capital movement and essential capex. The 30 to 40 percent band leaves cash for tax provisions, owner remuneration, dividends and reinvestment. Above 40 percent the business is stretched; above 50 percent the lender treats the application as overgeared even if DSCR formally clears the floor.
Which cap is the binding constraint?
The lower of the two. For high-margin software and professional services where free cash flow is a high percentage of turnover, the turnover cap binds. For low-margin retail and hospitality where free cash flow is a small percentage of turnover, the FCF cap binds harder. Check both before you apply.
Do asset-backed lenders cap differently?
Yes. Asset-backed term loans and commercial mortgages cap against loan-to-value of the secured asset rather than turnover. Allica Bank, OakNorth, Aldermore Commercial and Shawbrook lend up to 65 to 75 percent LTV on commercial property and 70 to 90 percent on plant and machinery. The turnover cap is a sense-check, not the binding number.
Does an MCA cap differently?
Merchant cash advance caps against monthly card take rather than turnover. The standard band is 1 to 1.5 times monthly card take, repaid over 6 to 12 months from a fixed percentage of daily settlements. Total annual MCA cost is typically 30 to 60 percent of the advance in factor-rate terms, which feeds back into the loan-affordability picture.
How do I calculate free cash flow from filed accounts?
Start with operating profit. Add back depreciation and amortisation. Subtract Corporation Tax on the operating profit. Subtract net working-capital movement (increase in debtors plus increase in stock, less increase in trade creditors). Subtract essential capex (replacement, not growth). The result is free cash flow available for debt service, dividends and growth capex.
Should I include the proposed loan in turnover-cap testing?
Yes for total committed debt, no for the cap percentage. The 25 to 30 percent cap is total committed debt principal divided by annual turnover. Sum your existing debt principal plus the proposed new loan principal, divide by trailing 12-month turnover. Lenders also test the proposed monthly debt service against monthly turnover.
What if my forecast turnover is materially higher than filed?
Lenders discount forecasts unless backed by signed contracts. A growth-led affordability case (apply for £200k against £400k turnover forecast vs £300k filed) needs evidence: signed customer contracts, hard pre-orders, a recurring-revenue book that is already running ahead of plan. Without evidence, lenders cap against filed turnover or run a 50:50 weighted view.
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Get matched now →Editorial review next steps
Once you know the binding cap, the next step is the lender review. For mainstream unsecured term lending in the £25k to £500k band, see Funding Circle and iwoca. For asset-backed structures above £150k, see Allica Bank, OakNorth, Aldermore and Shawbrook. For applicants near or above the standard caps, see Just Cashflow and Time Finance. BestBusinessLoans is editorial; for matched-lender introductions use our /get-quotes/ form.
By Oliver Mackman, Director, Best Business Loans Ltd. Last reviewed 10 May 2026.