Why revenue is the wrong starting point
Two businesses with identical revenue can have very different room for payments, because margins and fixed costs differ. A percentage-of-revenue rule treats them the same. Starting from the cash each business actually keeps shows which one can carry a payment and which one would be squeezed by it.
Example: Business A has $200,000 of monthly revenue, a 50 percent gross margin and $80,000 of operating costs, leaving $20,000. Business B has the same revenue, a 25 percent gross margin and $40,000 of operating costs, leaving $10,000. An $8,000 payment is 4 percent of revenue for both, but it takes 40 percent of A's cash and 80 percent of B's. The table sets them side by side. Illustrative figures.
Step 1: Find your monthly cash available
Cash available is what remains after every cost the business must pay to keep running, including what the owner needs to draw and taxes set aside. Use several months of records to find both an average and your lowest month. Existing funding payments come out before any new payment is considered.
Cash available = revenue − cost of goods − operating costs − owner draw − taxes set aside − existing payments
- Use your bank statements and bookkeeping, not estimates.
- Look back six to twelve months to capture slow periods.
- Note your lowest month separately; that is where payments fail.
| Business A | Business B | |
|---|---|---|
| Monthly revenue | $200,000 | $200,000 |
| Gross margin | 50% | 25% |
| Gross profit | $100,000 | $50,000 |
| Operating costs | $80,000 | $40,000 |
| Cash available | $20,000 | $10,000 |
| $8,000 payment as share of revenue | 4% | 4% |
| $8,000 payment as share of cash available | 40% | 80% |
Step 2: Decide your cushion
There is no universal safe percentage. The right cushion depends on how much your revenue swings, how concentrated your customers are, how much of your cost is fixed and how much cash you hold in reserve. The more uncertainty, the larger the share of cash available you should keep untouched.
Maximum new payments = cash available − cushion
Example: an owner with $20,000 of monthly cash available decides to keep half as a cushion because one customer provides a large share of revenue. That caps total new payments at $10,000 a month, so a $12,000 payment is out. A business with steadier, diversified revenue might choose a smaller cushion. Illustrative only; the cushion is your decision.
Step 3: Add up every payment in monthly terms
Convert each payment to a monthly figure and add them together, including equipment payments, lines of credit, business credit cards and any existing advances. Mixed daily, weekly and monthly schedules make the total easy to underestimate. The new payment has to fit alongside all of them.
Multiply a business-day payment by about 21 and a weekly payment by about 4.33. Example: an existing $1,500 monthly equipment payment and a $150 business-day payment (about $3,150) already total $4,650 a month; if they are included in cash available, fine, but if not, subtract them before sizing anything new. Illustrative only. See daily payment to monthly equivalent.
Step 4: Test the lowest month
An average hides the months when payments fail. Check the proposed payment against your lowest month of cash available from the past year. If it does not fit, decide in advance how you would cover it: a cash reserve set aside, a smaller amount, or a payment structure that flexes with sales.
Example: cash available averages $20,000 but fell to $9,000 in the slowest month. A $10,000 payment leaves a $1,000 gap that month before any cushion. The owner would need a reserve covering at least that gap for each slow month in the term, or a smaller payment. Illustrative figures. For a fuller test, use the revenue-drop stress test.
How funders see it, and how you should
Funders review information such as deposits, revenue consistency, time in business and credit to decide what they will offer. An offer tells you what a funder is willing to provide, not what is comfortable for your business. Your own check includes your owner draw, your cushion and your worst month, which only you can judge.
Use your affordable payment to work backward to an amount in how much funding your business can afford, and choose products whose schedules fit your deposits, such as working capital for short, specific gaps.
Frequently asked questions
Is there a standard percentage of revenue for loan payments?
No single percentage fits every business, because margins and fixed costs vary widely. Two businesses with the same revenue can have very different amounts of cash left over. Measure the cash your business keeps after all costs, decide on a cushion, and size payments from what remains.
Why use cash flow instead of revenue?
Because payments are made from the cash left after costs, not from revenue. Much of revenue is already committed to suppliers, payroll and rent. A payment that looks small against revenue can take most of what a thin-margin business actually keeps each month.
What cushion should I keep after payments?
It depends on your risks: how much revenue swings, whether a few customers provide most of it, how much cost is fixed and how much cash you hold. Higher uncertainty calls for a larger cushion. Test your choice against your lowest month from the past year before committing.
How do multiple funding payments add up?
Convert each to a monthly figure, multiplying business-day payments by about 21 and weekly payments by about 4.33, then add them to monthly payments. Include equipment, lines of credit, business credit cards and any advances. The total, not any single payment, is what has to fit your cash available.
How do funders judge affordability differently from owners?
Funders review information such as deposits, revenue consistency, time in business and credit to decide what to offer. Owners need to account for things a funder may not see, such as the owner's draw, planned expenses and the cushion they want. Being offered an amount does not make it comfortable.
Know your payment ceiling
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Updated September 14, 2026 · Roifunder Funding Team