1. What is Borrowing Capacity?

Borrowing capacity refers to the maximum amount of money an individual or business can borrow based on their financial situation. It's calculated using serviceable debt from income statements and general borrowing multipliers.

2. How Does the Calculator Work?

The calculator uses the borrowing capacity formula:

Where:

• \( Serviceable Debt \) — Debt that can be serviced from income statement
• \( General Borrowing \) — Borrowing multiplier based on financial profile

Explanation: The equation calculates the maximum borrowing amount by multiplying serviceable debt by an appropriate borrowing multiplier.

3. Importance of Borrowing Capacity Calculation

Details: Accurate borrowing capacity calculation is crucial for financial planning, loan applications, and maintaining healthy debt-to-income ratios.

4. Using the Calculator

Tips: Enter serviceable debt amount and general borrowing multiplier. Both values must be positive numbers for accurate calculation.

5. Frequently Asked Questions (FAQ)

Q1: What is serviceable debt?
A: Serviceable debt refers to the amount of debt that can be comfortably repaid from current income without financial strain.

Q2: How is general borrowing determined?
A: General borrowing multipliers are typically based on credit history, income stability, and lender-specific criteria.

Q3: Why is borrowing capacity important?
A: It helps individuals and businesses understand their borrowing limits and avoid over-leveraging.

Q4: Are there limitations to this calculation?
A: This is a simplified calculation. Actual borrowing capacity may vary based on lender policies, market conditions, and additional financial factors.

Q5: Should this calculation be used for all types of loans?
A: Different loan types (mortgage, business, personal) may have different calculation methods. Consult with financial advisors for specific loan types.