1. What is Business Borrowing Capacity?

Business borrowing capacity refers to the maximum amount of debt a company can responsibly take on based on its earnings before interest, taxes, depreciation, and amortization (EBITDA) and industry-standard debt multiples. This calculation helps businesses determine their commercial borrowing limits.

2. How Does the Calculator Work?

The calculator uses the business borrowing formula:

Where:

• \( EBITDA \) — Earnings Before Interest, Taxes, Depreciation, and Amortization (currency)
• \( Debt\ Multiple \) — Typically ranges from 3-5x depending on industry and risk factors (unitless)

Explanation: Lenders typically use a multiple of EBITDA to determine how much debt a business can service. The multiple varies based on industry, company stability, and market conditions.

3. Importance of Borrowing Capacity Calculation

Details: Understanding borrowing capacity is crucial for business planning, expansion decisions, acquisitions, and managing financial health. It helps businesses avoid over-leveraging while maximizing growth opportunities.

4. Using the Calculator

Tips: Enter your company's EBITDA in your local currency and select an appropriate debt multiple (typically 3-5x). All values must be valid (EBITDA > 0, debt multiple between 3-5).

5. Frequently Asked Questions (FAQ)

Q1: Why does the debt multiple range from 3-5x?
A: The multiple varies based on industry norms, company stability, growth prospects, and lender risk appetite. More stable businesses in mature industries typically command higher multiples.

Q2: What factors can increase my borrowing capacity?
A: Strong cash flow, consistent earnings growth, valuable assets, industry position, and good credit history can increase your borrowing capacity.

Q3: Are there other factors lenders consider beyond EBITDA multiples?
A: Yes, lenders also consider debt service coverage ratio, loan-to-value ratios, industry risks, management quality, and macroeconomic conditions.

Q4: How often should I reassess my borrowing capacity?
A: Businesses should reassess their borrowing capacity annually or whenever significant changes occur in financial performance, market conditions, or strategic direction.

Q5: Can startups use this calculation?
A: Startups may have limited EBITDA, so lenders often use alternative methods like projected cash flows, asset values, or personal guarantees to determine borrowing capacity.