Glossary
Borrowing capacity
The maximum debt a lender's own method says you can carry. It moves with how well your earnings are evidenced, not just with what you earn.
In plain English
Borrowing capacity is the largest facility your income supports under a lender's assessment method: adjusted earnings, existing commitments, assessment-rate repayments and covenant minimums, all applied together. It is not a fixed property of the business. It is a function of how the numbers are read.
That is why two lenders can put very different numbers on the same borrower, and why the same lender can change its answer when the earnings are evidenced properly. Capacity built on a vendor's unadjusted P&L and capacity built on documented, normalised earnings are different numbers.
Why a lender cares
We have seen assessed capacity more than double without the business changing at all, because one-off costs were evidenced, real trading was cross-checked and the existing debt was restructured. Lenders do not lend to the business you run; they lend to the file you show them.
Worked example
A veterinary practice owner was capped at $3.0m because lenders could not read his income. The same practice, evidenced line by line with the debt restructured, assessed at $6.5m.
Where this term takes you
Reading up because a deal or a facility is on the table? One call with Nicholas gets you a straight read on your numbers, free.
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