How Much Can My Business Borrow? EBITDA, Advance Rates and LTV

How much your business can borrow depends on what the lender is lending against: your profits, your assets or your property. For an established business, a cash flow lender may go up to 4x EBITDA, an asset based lender advances up to 90% against eligible receivables, and a commercial mortgage lender goes up to 75% LTV. The real answer is usually a combination of these, tested against whether the business can comfortably service the debt.

This guide is for owners and finance directors of established UK businesses looking to raise from £200k to £100m, whether for growth, an acquisition, a refinance or working capital. It explains how lenders actually size a facility, so you can work out a realistic range before you speak to anyone.

Key facts

• Cash flow lending: senior term loans up to 4x EBITDA, from 6.5% a year or 2.5% over Bank Rate, unsecured up to £2m, over 1 to 10 years.
• Acquisition finance: up to 5x EBITDA, over up to 7 years.
• Asset based lending: receivables up to 90%, stock up to 90% of NOLV, plant and machinery up to 85% of NOLV and real estate up to 80%, from 2% over Bank Rate.
• Property: commercial mortgages up to 75% LTV, from 1% over Bank Rate, over up to 25 years.
• Recurring revenue finance: up to 70% of ARR for subscription businesses.
• Bank Rate is currently 3.75%, so margins quoted "over Bank Rate" sit on top of that.

The three ways lenders size a facility

Every lender starts with the same question: if things go wrong, how do we get repaid? The answer decides which measure they use to size your borrowing.

These are not mutually exclusive. Many of the larger facilities we arrange combine two or three of them, because each lender only gives full credit for the thing it understands best.

Cash flow lending: multiples of EBITDA

A cash flow lender looks at your earnings before interest, tax, depreciation and amortisation (EBITDA) and asks how many years of it they are prepared to lend. For senior term loans on our panel, that is up to 4x EBITDA (see our business loans page for the full range). For acquisition finance, where the lender can also count the earnings of the business being bought, it is up to 5x EBITDA.

The multiple is a ceiling, not a target. Where you land depends on:

• Quality of earnings. Lenders adjust your EBITDA for one-offs, owner costs and anything that will not recur. A clean, well-evidenced EBITDA number is worth more than a large one with a long list of add-backs.
• Cash conversion. EBITDA that turns into cash is what repays debt. Heavy capital expenditure, growing working capital needs or tax bills all reduce what is left for the lender.
• Visibility. Contracted or repeat revenue, a diversified customer base and a long trading record push you towards the top of the range.
• Sector. Cyclical or project-based sectors are usually lent to more conservatively than businesses with recurring income.

Asset based lending: advance rates against your balance sheet

An asset based lender sizes the facility against what it could realise from your assets. One revolving facility can cover up to four asset classes:

NOLV is net orderly liquidation value: what an independent valuer thinks the asset would fetch in an orderly sale, after costs. It is usually well below book value, which is why stock and plant raise less than owners expect when they first look at their balance sheet.

The receivables advance applies to eligible debts only. Lenders exclude invoices that are overdue beyond their limits, owed by connected companies, offset by contras, or concentrated in one customer above an agreed cap. Asset based lending on our panel runs from £2m to £100m, from 2% over Bank Rate, on 3 to 5 year terms. Because availability moves with your ledger and stock, the facility grows as you do. Our asset based lending page explains how we structure these facilities. Our asset based lending guide goes into eligibility in more detail.

Property: loan to value

If you own your premises or hold investment property, property finance is often the cheapest debt available. Commercial mortgages go up to 75% LTV, from 1% over Bank Rate, over up to 25 years. Portfolio finance goes up to 75% LTV. Bridging finance can go up to 100% LTV where additional security is offered, from 0.69% a month, for 1 to 24 months.

The LTV is the ceiling. For investment property, the rent also has to cover the interest comfortably, and for owner-occupied property the trading business has to support the repayments. See our commercial mortgages and property finance page for how we structure these.

Affordability: the test that usually decides the number

The multiple, advance rate or LTV gives the lender's maximum. The figure you are actually offered is often set lower by affordability: can the business pay the interest and capital repayments out of its cash flow, with headroom to spare?

Lenders model this by taking your forecast cash flow available for debt service and comparing it with the scheduled repayments under the proposed facility. They then stress test it: what happens if sales drop, margins tighten or rates rise? If the business only just covers its repayments in the base case, the facility will be cut back, the term extended or the structure changed.

Three levers change the affordability answer:

1. Term. A longer term lowers annual repayments. Senior term loans run 1 to 10 years, so stretching the term can unlock a larger facility on the same cash flow.
2. Structure. Swapping part of an amortising term loan for a revolving facility, or moving working capital needs onto an asset based facility, reduces fixed repayments.
3. Security. Adding property or assets can bring in a cheaper lender for part of the debt, lowering the blended cost.

You can model repayments on different terms with our financial calculator.

Putting it together: stacking facilities

The largest sustainable facility usually comes from letting each lender lend against what it values most. A typical structure for a profitable, asset-rich business might be:

• a commercial mortgage against the freehold, up to 75% LTV;
• an asset based facility against debtors and stock, at the advance rates above;
• a senior term loan sized on the remaining cash flow, within the overall EBITDA multiple the senior lender is comfortable with.

The lenders need to agree how security is shared and what each ranks against, which is where intercreditor terms come in. It takes more work to arrange, but it often raises materially more than any single lender would offer on its own, at a lower blended cost.

For businesses without much security, the Growth Guarantee Scheme can help. It supports facilities up to £2m per group, with a 70% government guarantee to the lender, which can make a lender comfortable with a loan it would otherwise decline or reduce. The business remains 100% liable for repayment.

What lenders will ask to see

Good information speeds up credit decisions and improves terms. Gaps or inconsistencies between your accounts and forecasts are the most common reason a facility comes back smaller than expected.

Common mistakes when estimating borrowing capacity

• Using the headline rate on every asset. Not every debtor is eligible and stock is valued at NOLV, not cost.
• Ignoring existing debt. Lenders look at total debt against EBITDA, including leases and existing loans, not just the new facility.
• Relying on add-backs. Adjustments need evidence. Unsupported add-backs are usually removed.
• Matching the wrong product to the purpose. Funding long-term investment with a short-term facility, or working capital with an amortising loan, strains cash flow.
• Going to one lender. Appetite varies widely by sector, deal size and structure. A single "no" or a low offer often says more about that lender than about your business.

How GBF helps

We start by understanding your numbers and what the money is for, then write a credit paper that presents the business the way lenders assess it. We approach the lenders best suited to the deal from a whole-of-market panel of 650+ lenders, compare offers on availability, cost and covenants, negotiate terms and manage the process through to completion. Our debt advisory team handles acquisitions, MBOs, refinancing and growth capital end to end, and has arranged £165m+ of funding.

FAQs

How much can a business borrow against EBITDA?

Senior term loans on our panel go up to 4x EBITDA, and acquisition finance up to 5x EBITDA. The actual multiple depends on the quality and consistency of earnings, cash conversion, sector and existing debt. Lenders also test that repayments are affordable from cash flow.

Is borrowing capacity based on turnover or profit?

For larger facilities it is mainly based on profit and assets, not turnover. Turnover-based rules of thumb are used by some small-ticket lenders, but cash flow lenders look at EBITDA and asset based lenders look at the value of debtors, stock and plant. The exception is recurring revenue finance, which goes up to 70% of ARR.

Can I borrow without security?

Unsecured term loans go up to £2m, subject to status and lender approval. Lenders will usually want strong, consistent profits and may ask for a personal guarantee. The Growth Guarantee Scheme can support facilities up to £2m per group where security is limited.

Can I combine different types of finance?

Yes. Combining a commercial mortgage, an asset based facility and a cash flow loan often raises more than any single facility and lowers the blended cost. The lenders agree how security is shared between them.

What is the smallest and largest facility GBF arranges?

We arrange facilities from £200k to £100m. Asset based lending starts at £2m, commercial mortgages and bridging at £1m, and development finance at £5m. All finance is subject to status and lender approval.

Does checking what I could raise affect my credit file?

Our check what you could raise tool gives an indicative range without a credit search. Lenders will run their own checks later, once you decide to proceed with an application.

If you want a realistic view of what your business could raise, and which mix of facilities would get you there, Check what you could raise or call us on 020 3432 2341. You can also browse how we fund businesses in your sector on our industries page, or read our business loans guide.

Sources

• Bank of England: Bank Rate
• British Business Bank: Growth Guarantee Scheme FAQs

Tom Renshaw

Founder and Managing Director, Growth Business Finance

Tom arranges business loans, asset based lending and property finance for UK SMEs and mid-market companies. More about GBF