Business loan declined: affordability ratio

Why the affordability ratio decides the answer

Lenders don't just check whether you can repay in theory; they test the proposed new repayment against your free cash flow after existing debt service. If the combined commitment crosses their affordability ceiling (commonly somewhere between a third and two fifths of free cash flow) the application is declined automatically, regardless of how clean your credit history is. The decline is about capacity, not conduct, which is why fixing it's usually a question of reshaping the request or the existing debt rather than waiting or repairing a credit file.

How to bring the ratio back into range

There are three practical levers. Reduce the ticket so the monthly payment fits. Lengthen the term so the same amount repays more slowly and the monthly figure drops. Or consolidate existing higher-rate debt first, freeing up cash-flow headroom before you add anything new. Some products also help by design: invoice finance advances against your debtor book and is repaid as those invoices settle, so it doesn't add a fixed monthly instalment to your debt service the way a term loan does. An iwoca flexi-loan only charges on what you draw, which can keep the monthly commitment lower.

What to do next

Build a twelve-month cash-flow forecast that shows the new repayment fitting comfortably, and use the affordability-ratio calculator to model it before you apply. If existing facilities are the constraint, look at whether they can be refinanced or consolidated; if the underlying issue is simply that turnover is too small to support the ask, see the low-turnover guide. If you run a limited company or LLP, you can send an enquiry through FundBiz. We pass it to a business finance broker, who will contact you about your options.