Calculator

MBO debt capacity calculator: how much senior debt the cash flow can carry

Before anyone talks about price, the useful question is how much the business itself can borrow. The calculator takes EBITDA, tax and maintenance capex, applies a target debt service cover ratio and inverts the loan arithmetic to give the maximum amortising debt at your rate and term.

Important. Buyout debt is secured on the business and usually supported by personal guarantees from the management team. Assets given as security may be repossessed if repayments are not maintained. We arrange unregulated business finance for limited companies and LLPs only and are not authorised by the FCA. Figures shown are illustrative and do not constitute advice.

EBITDA (adjusted, annual)

Maintenance capex (annual)

Interest rate (all-in)

Term

yrs

Target DSCR

Lenders typically want 1.25x to 1.5xExisting annual debt service

Free cash flow

£700,000

EBITDA less 25% tax and capex

Service available

£538,462

Free cash flow divided by 1.30x

Maximum senior debt

£2,121,884

Implied leverage

2.1x

Upper end of bank senior debt; a cash flow lender would stretch further.

Inverts the annuity formula: the loan whose annual capital and interest equals the service available at your target cover ratio. Illustrative only; each funder sets its own cover test, tax and capex assumptions.

Check this against real funder criteria

Cover ratios, amortisation profiles and how capex is treated differ by funder. We will run your figures against the panel.

Why cover, not leverage, decides the loan

Leverage multiples are shorthand; cover is the test. Two businesses with the same EBITDA can support very different debt if one converts profit to cash and needs little capex while the other carries heavy reinvestment and working capital. That is why a credit committee looks at free cash flow after tax and capex against the actual repayment profile, and why an amortising five-year bank loan supports less debt than a longer facility or a bullet from a debt fund. The implied leverage band shown under the result tells you which corner of the market your number sits in.

Using the result in a negotiation

The debt capacity sets the ceiling on the cash a management team can offer on day one. Add the team's own investment and you have the maximum cash price; anything above it has to be deferred as a vendor loan note, left in as a retained stake or funded by an investor. Walking into the conversation with the owner knowing that ceiling is the single most useful piece of preparation a team can do. For the full stack, run the funding structure calculator, and for how funders differ read management buyout loans and the funder panel. Pricing indicative as of September 2026.

Debt capacity questions, answered

How do lenders calculate how much a business can borrow for a buyout?+

From free cash flow, not from turnover or assets. They take EBITDA, deduct tax and the capex needed to keep the business running, and require the result to cover the annual capital and interest on the debt by a margin, usually 1.25x to 1.5x. The loan that produces that cover at the lender's rate and term is the debt capacity.

What is DSCR in a management buyout?+

The debt service cover ratio: free cash flow available for debt service divided by the annual capital and interest actually due. It is the covenant most MBO facilities are tested on. A DSCR of 1.3x means the business generates 30 percent more cash than it needs to pay its funders.

Why does the term change the borrowing capacity so much?+

Because a longer amortisation spreads the capital repayments, reducing the annual service and letting the same cash flow support more debt. A five-year loan and a seven-year loan at the same rate can differ by a third in capacity, which is why the term is negotiated as hard as the rate.

Does the debt capacity include vendor loan notes?+

Not in this calculator, which sizes the senior layer. Vendor loans are usually interest-only during the senior term and subordinated, so senior lenders often exclude them from the cover test or include only the cash interest. The funding structure calculator shows both layers together.

What leverage is normal for a UK MBO?+

Senior debt of 2.0x to 3.0x EBITDA from banks, 3.0x to 4.0x from cash flow lenders, and total debt including vendor or mezzanine layers of 3.0x to 4.5x. Indicative as of September 2026; sector, size and cash conversion move the ceiling.

Worked example

A management team buys a business generating £1.0m of EBITDA for £5.0m. Senior debt of £2.5m (2.5x EBITDA) over six years at an indicative 8.5% all-in costs roughly £550,000 a year in capital and interest. A vendor loan note of £1.25m at 6% and £1.25m of management and investor equity complete the price, before fees and working capital. Debt service cover on year-one free cash flow of about £780,000, after tax on profit and maintenance capex, is roughly 1.3x. Indicative as of September 2026; every deal differs by lender, leverage and credit.

Funder panel and fees

We work with banks, debt funds and asset based lenders across the UK market, including high-street and challenger banks, specialist cash flow lenders, asset based lenders, mezzanine funds and private equity investors. Initial consultation is fee-free. We charge an arrangement fee of 1% of the debt raised, payable only on successful drawdown. Where a lender pays us an introducer or procuration fee, that is credited first and you pay only the difference up to 1%. No fee at all if the transaction does not complete. Exact figures are confirmed in writing before you commit.

Regulatory status

This is secured business lending. Any asset given as security, including property, may be repossessed if repayments are not maintained, and personal guarantees may be called. MBOFinance.co.uk is a trading style of Lenzie Consulting Ltd, which is not authorised or regulated by the Financial Conduct Authority. We arrange unregulated business finance for UK limited companies and limited liability partnerships only, including management buyout debt, asset based lending and vendor finance. We do not arrange consumer credit, regulated mortgage contracts, or lending to sole traders and small partnerships that falls within the Consumer Credit Act; where a case would need FCA permission we refer it to an FCA-authorised firm. We are not a lender and we do not give tax, legal or investment advice.