Quick answer
To test whether your business can carry a loan, find your average and slowest monthly turnover, estimate the monthly repayment from the amount plus the total cost of finance, then compare the repayment to turnover and, more importantly, to what's left after costs. Check it against your slowest month and existing debts. If it only works in good months, change the amount, term or structure.
Key points
- Use real deposits from bank statements, not hopeful forecasts
- Compare the repayment to margin, not just turnover
- Test your slowest month and include existing loan repayments
- Adjust term, amount or structure until it works in a bad month
Every business loan has two numbers: the one you borrow and the one you repay. Most people spend all their energy on the first. This guide is about the second, because the repayment is what you’ll feel every single week.
The comfort test takes about fifteen minutes, a calculator and your last twelve months of bank statements. It doesn’t need an interest rate.
Why test repayments before you apply?
Business.gov.au’s guide to applying for a business loan says lenders check whether you can afford the repayments. They’ll test it their way. You should test it your way first, for two reasons:
- A lender’s “yes” isn’t the same as “comfortable”. Lenders approve loans that are serviceable on paper. Only you know how tight the business feels in March.
- You’ll ask for the right amount. Owners who’ve done the maths ask for sensible figures, and sensible figures get matched faster.
Check 1: What does the business really bank?
Open your business bank statements for the last twelve months. For each month, add up the deposits from customers. Leave out:
- loan money received;
- transfers from your personal account or between your own accounts;
- one-off windfalls such as an insurance payout or asset sale;
- GST refunds.
Now note three figures: your average month, your slowest month, and your best month.
Illustrative example
A made-up joinery workshop finds:
| Deposits | |
|---|---|
| Average month | $110,000 |
| Slowest month (January) | $62,000 |
| Best month (November) | $150,000 |
Check 2: What will the repayment be?
You need the amount, the term and the total cost of finance in dollars from a quote (or a sensible estimate). Add the amount and the cost, then divide by the number of months.
The joinery wants $150,000 for a CNC machine and a dust extraction upgrade. A quote shows a total cost of finance of $36,000 over 36 months.
- Total to repay: $186,000
- Monthly repayment: about $5,167
The 1-2-3 Loan Repayment Planner does this instantly, at weekly, fortnightly or monthly frequency.
Check 3: Compare it to turnover
| Turnover | Repayment share | |
|---|---|---|
| Average month | $110,000 | 4.7% |
| Slowest month | $62,000 | 8.3% |
Our planner gives rough comfort bands as a starting point: under 8% of turnover is “cruising”, 8% to 15% “in the groove”, 15% to 25% a “tight squeeze”, and over 25% a “stretch alert”. These are our plain-English guide, not a lending rule. On turnover alone, the joinery looks fine. But turnover isn’t the full story.
Numbers looking comfortable? You’re ready for step 1. Start your 60-second enquiry. No credit check to enquire, and a real expert picks it up from here.
Check 4: Compare it to margin
This is the check that separates good loans from painful ones. Work out what’s left from an average month after the costs of running the business: materials, wages, super, rent, power, other loan repayments. That’s the money that actually repays a new loan.
The joinery’s rough monthly picture:
| Average month | Slowest month | |
|---|---|---|
| Deposits | $110,000 | $62,000 |
| Materials, wages, super, rent, other costs | $92,000 | $70,000 |
| Left over before the new loan | $18,000 | –$8,000 |
| New loan repayment | $5,167 | $5,167 |
| Left over after the new loan | $12,833 | –$13,167 |
In an average month, the loan eats about 29% of what’s left over. Fine. In January, the business already runs at a loss, and the loan deepens it. That’s the reality check: the business needs a January buffer, either cash set aside from November or a structure that’s gentler in the slow months.
The ATO’s small business benchmarks let you compare your cost ratios with similar businesses, which helps sanity-check these figures.
Check 5: Add everything else you already repay
Lenders look at total repayments, and you should too. Add up existing loans, equipment finance, vehicle finance, merchant advances and any ATO plan.
If the joinery already repays $4,000 a month on a ute and a forklift, total finance repayments become $9,167 a month: 8.3% of an average month and 14.8% of January. Still workable, but it confirms the need for a buffer.
What if the test fails?
Don’t give up. Change one variable at a time and re-run it:
| Lever | Effect | Trade-off |
|---|---|---|
| Longer term | Lower repayment | Usually more total cost |
| Smaller amount | Lower repayment | Less funded |
| Property security | May widen options and terms | Puts property at risk |
| Repay principal at the end | Much lower running cost | Needs a genuine exit |
| Seasonal buffer | Covers slow months | Needs cash set aside first |
| Wait and build history | Better position later | Delays the plan |
Business.gov.au describes a cash flow forecast as an estimate of future sales and costs that helps you see shortages and surpluses coming. Building a simple twelve-month forecast is the best way to test these levers. See business loan repayments explained for how term and structure change the pattern.
The comfort test on one page
- Find your average, slowest and best month of real deposits.
- Calculate the repayment from the amount plus the total cost of finance.
- Compare it to turnover in average and slow months.
- Compare it to what’s left after costs.
- Add your existing repayments and check again.
If it passes all five, you’re borrowing from strength. If it fails one, you know which lever to pull.
The comfort test for seasonal businesses
If your income swings with the seasons, monthly checks can mislead. A ski-town café or a Christmas-heavy retailer may fail the slow-month test every year, yet be perfectly healthy across twelve months.
For seasonal businesses, add one more step:
- Total the year. Add up twelve months of deposits and twelve months of costs.
- Find the low point. Track the running cash balance month by month and note how low it goes.
- Check the buffer. Can the peak season build enough cash to carry repayments through the off-season?
If the answer is yes, the loan can work even if individual months fail. If the answer is no, consider a structure with lower repayments in the off-season, a line of credit, or a smaller amount.
Common mistakes in the comfort test
- Using your best month as “normal”. Lenders won’t, and you shouldn’t.
- Counting loan advances or transfers as turnover. They inflate the figure.
- Forgetting existing finance. Ute loans and equipment leases come out of the same cash.
- Ignoring tax. GST and PAYG withheld aren’t yours to spend. Take them out before you compare.
- Assuming the loan will instantly lift income. Allow for a ramp-up if the loan funds growth.
Using the result on your enquiry
Once you’ve done the test, you’ll know three useful things: your genuine average turnover, your slowest month, and the repayment you’re comfortable with. Put the first two on the enquiry form accurately, and mention the third on the call. It gives our expert a head start in matching the amount, term and structure to what the business can actually carry.
A quick worked recap
For the joinery in this guide, the loan passes the turnover check in both average and slow months, passes the margin check in an average month, and fails the margin check in January. The fix isn’t to abandon the machine. It’s to set aside a January buffer from November and December takings, or to choose a structure with lighter early repayments. One test, one clear action.
Before you lock anything in, line up the paperwork with our business loan documents checklist and compare the trade-offs on unsecured business loans.
Comfortable? Let’s go
Owners who’ve done this test walk into step 2 with confidence, and our experts love a conversation that starts with real numbers.
Take step 1 here. It’s about 60 seconds, there’s no credit check to enquire, your details stay with us instead of being sprayed across lenders, and a real expert calls to talk it through. Please put your genuine average turnover on the form, not your best month, so we can match you to a loan you’ll be comfortable with from day one.
Frequently asked questions
What percentage of turnover should a loan repayment be?
There's no official rule. Our repayment planner uses rough comfort bands (under 8% of turnover is cruising, over 25% is a stretch), but margins matter more. A low-margin business should aim lower than a high-margin one.
Should I use average or slowest-month turnover?
Both. Average turnover shows whether the loan works over a year; slowest month shows whether you can survive the dips. If it only works in the average month, you need a buffer or a different structure.
Do lenders use the same test?
Lenders have their own serviceability methods and look at more than repayment-to-turnover, including other debts, credit and security. This test is for you, so you borrow an amount you're comfortable with.
What if the repayment is too high?
Try a longer term, a smaller amount, property security, or a structure where principal is repaid at the end from a defined event. Or wait until the business is stronger.
Does the test work for seasonal businesses?
Yes, with a tweak. Look at the full year, and check whether you can meet repayments through the off-season from cash built up in the peak.