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Methodology

Business Loan Affordability Planner methodology

Set a borrowing ceiling from cash available for debt service, a user-selected coverage minimum, rate and payment term.
Duc Nguyen X.By Duc Nguyen X.· Founder, Margin101Last reviewed: View update historyMethodology

Educational only: Business decision support, not accounting, tax or legal advice.

Privacy: Calculations run locally; Margin101 does not receive your commercial inputs.

Update policy: Reviewed when formulas or official dependencies change.

Scope: Market-neutral small-business planning using your own assumptions.

1. Formulas and units

Base Maximum Periodic Payment
baseMaximumPeriodicPayment = base cash available ÷ minimum coverage ratio

Where

minimumCoverageRatio
Minimum coverage ratio (decimal cash-coverage ratio: cash available / scheduled payment)Source: User decision
baseMaximumPeriodicPayment
Base Maximum Periodic Payment (currency units, ex tax)Source: Calculated output
Base Maximum Principal
baseMaximumPrincipal = present value of base maximum payments

Where

totalPayments
Total payments (whole scheduled payment periods/loan term)Source: Business record
baseMaximumPrincipal
Base Maximum Principal (currency units, ex tax)Source: Calculated output
Downside Maximum Periodic Payment
downsideMaximumPeriodicPayment = downside cash available ÷ minimum coverage ratio

Where

minimumCoverageRatio
Minimum coverage ratio (decimal cash-coverage ratio: cash available / scheduled payment)Source: User decision
downsideMaximumPeriodicPayment
Downside Maximum Periodic Payment (currency units, ex tax)Source: Calculated output
Downside Maximum Principal
downsideMaximumPrincipal = present value of downside maximum payments

Where

totalPayments
Total payments (whole scheduled payment periods/loan term)Source: Business record
downsideMaximumPrincipal
Downside Maximum Principal (currency units, ex tax)Source: Calculated output
Principal Ceiling Reduction
principalCeilingReduction = base maximum principal − downside maximum principal

Where

baseMaximumPrincipal
Base Maximum Principal (currency units, ex tax)Source: Calculated output
downsideMaximumPrincipal
Downside Maximum Principal (currency units, ex tax)Source: Calculated output
principalCeilingReduction
Principal Ceiling Reduction (currency units, ex tax)Source: Calculated output
Input Coverage Ratio
inputCoverageRatio = visible user-entered minimum coverage ratio

Where

minimumCoverageRatio
Minimum coverage ratio (decimal cash-coverage ratio: cash available / scheduled payment)Source: User decision
inputCoverageRatio
Input Coverage Ratio (coverage multiple)Source: Calculated output

Money inputs and outputs use the currency selected in the scenario without changing the canonical methodology. Rates, margins, utilisation and buffers are entered as percentages and converted to decimal values for calculation.

2. Worked example

Input assumptions

The worked rows below come directly from the registered engine and visible default fixture.

Calculation and outputs

Example

The worked rows below come directly from the registered engine and visible default fixture.

Base Maximum Periodic Payment
1,000 currency units
Base Maximum Principal
24,000 currency units
Downside Maximum Periodic Payment
800 currency units
Downside Maximum Principal
19,200 currency units
Principal Ceiling Reduction
4,800 currency units
Input Coverage Ratio
1.2

The exact engine-derived outputs are shown in the labelled rows below.

Interpretation

The ceiling is a cash-cover stress test, not a lender eligibility or approval result.

3. Validation and boundary checks

  • All inputs must be finite and within the visible boundaries.
  • Cash, debt and timing values use one consistent planning period.
  • Payment counts and frequencies must be positive whole numbers.

4. Assumptions and source classification

  • All balances, rates, timing and coverage thresholds are user-supplied records or explicit assumptions.
  • No lender covenant, market rate, policy threshold or future cash flow is inferred.

This planner has no current policy-data dependency. Its commercial assumptions are user supplied. Registered family-level regression suites exercise the shared business-logic engine and worked-result reconciliation.

5. Limitations

  • The model excludes lender fees, taxes, covenant definitions and lender-specific credit assessments.
  • It does not replace accounting, tax, legal or financial advice.

This is educational decision support, not tax, accounting, legal or financial advice. Check the treatment of your actual transactions under the rules that apply to your business and seek qualified advice where appropriate.

6. Update and evidence policy

Registered family-level suites test formula invariants and example reconciliation; the release ledger records that coverage without claiming a separate oracle for every line of public copy. There is no official threshold or benchmark to refresh for this planner. Commercial inputs remain user-supplied because they vary by business and contract.

Change history

  1. : Initial public release of the Business Loan Affordability planner and methodology.

Related reading

Guides to interpret the decision and its assumptions.

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