When it comes to raising commercial debt, the high-street bank is no longer the only route. This guide contrasts every debt instrument, explains how lenders evaluate credit risk, and demonstrates how to stress-test your debt capacity in advance.
"Borrowing money" sounds straightforward: you need capital, you apply for it, you repay it. For business owners, the reality is far more nuanced. The right facility hinges on what the capital is deployed for, how quickly that investment delivers a return, and what security you can put on the table.
This guide covers the various ways to secure commercial finance, how underwriters assess your application, and how to carry out a few core calculations to prevent over-borrowing or choosing the wrong funding instrument.
Step 1: match the funding purpose to the debt term
The fundamental golden rule of corporate finance: match long-term assets with long-term debt, and short-term assets with short-term facilities. Commercial premises last for decades and suit a 10 to 20-year term loan. Machinery suits asset finance or a loan term that mirrors its economic working life. Stock and receivables constitute working capital and belong on a flexible working capital facility.
When businesses run into trouble, it is usually because long-term capital expenditure was financed with short-term liquidity. The resulting monthly debt service outstrips the cash flow generated by the asset.
Overview of the primary finance options
- Commercial term loan (fixed credit): fixed amount, fixed term, and amortisation schedule; ideal for capital investments
- Bank overdraft / revolving credit: flexible credit limit designed to smooth working capital fluctuations
- Leasing / asset finance: the underlying asset (machinery, commercial vehicles, plant) serves as security
- Factoring: raise funds against outstanding sales invoices to unlock working capital faster
- Credit union: peer-to-peer business lending run by and for entrepreneurs, frequently coupled with business mentoring
- Crowdfunding: securing debt finance from an aggregated pool of private investors via a platform
- Microfinance: smaller facilities tailored for early-stage startups and sole traders
- Subordinated debt or government-backed loan schemes such as Innovatiekrediet
How underwriters assess your proposition
At their core, all lenders evaluate the same fundamental questions: can the business comfortably service the interest and capital repayments, what happens if trading conditions deteriorate, and how much equity skin in the game does the owner have?
- Cash flow and DSCR: the ratio between free cash flow and annual debt service (interest plus principal repayments)
- Solvency: the proportion of equity capital standing behind the company's total debt liabilities
- Security and collateral: commercial premises, plant and machinery, inventory, debtors, or personal guarantees
- Management team and business case: track record, commercial validation of forecasts, and overall realism
Worked example: how much can you borrow?
Suppose your business generates an annual EBITDA of €150,000. Commercial lenders typically insist on a minimum DSCR of 1.25. The maximum sustainable annual debt service (interest plus principal) is therefore approximately €150,000 / 1.25 = €120,000. On a five-year term loan at an interest rate of 7%, this supports borrowing in the region of €500,000.
Note that this is a baseline simplification: corporation tax, ongoing capex, and existing debt obligations must be factored in first. Run the numbers on your specific situation using our finance calculator prior to submitting an application.
Checklist for your application
- Statutory accounts for the last two financial years and year-to-date management accounts
- Financial forecasts detailing projected turnover, costs, and cash flow across the full facility term
- Clear narrative describing the commercial objective and capital investment
- Schedule of existing credit lines, borrowings, and pledged collateral
- Supporting third-party quotes, professional valuations, or binding contracts
Commercial borrowing in Eindhoven and Brainport
Across the Eindhoven region, the funding landscape extends well beyond high-street retail banks to include regional institutional players, such as regional development company BOM and dedicated innovation funds. For advanced manufacturing companies and high-tech supply chain vendors, blending bank debt with leasing, factoring, or R&D funding schemes delivers distinct advantages. This ensures debt service remains properly synchronised with real-world cash flow.
Frequently asked questions
- What is the most effective way to borrow money for a business?
- That depends entirely on the purpose of the funds. For capital expenditure, a term loan or asset finance is the natural fit; for working capital swings, look to an overdraft facility or factoring. Always select a facility duration that mirrors your return-on-investment timeline.
- Do I need to invest my own capital to secure commercial finance?
- In most instances, yes. Lenders expect founders to share the financial risk, typically requiring 10% to 30% of the investment amount in equity. A subordinated loan can often serve to bridge or substitute part of this equity injection.
- Does a BKR credit registration matter when taking out business finance?
- For sole proprietorships and general partnerships (vof), underwriters look closely at the personal credit history of the owners, including any Dutch BKR records. For limited liability companies (bv), the assessment focuses primarily on corporate balance sheet strength, though personal guarantees are routinely required.