Business Loan · Question

How do I decide the loan amount to ask a lender for?

Short answer

Work backwards from the purpose. List what the money will actually buy or cover, add a modest buffer for delays and price changes, subtract what you can fund from your own resources, and then test whether your cash flow can carry the instalments. Ask for the amount that closes a defined gap, not the largest figure a lender might entertain. A costed request is easier to appraise.

In more detail

Start with a line-by-line need. For equipment, that means the quotation, transport, installation and any statutory costs. For working capital, it means the extra stock and receivables you will carry between paying suppliers and collecting from customers.

Next, subtract your own contribution. Lenders usually expect the borrower to fund part of a purchase from internal resources, often called margin money, so asking for the full cost can lead to a reduced sanction.

Then run a repayment test. Take your realistic monthly surplus after operating costs, tax and existing instalments, and see how comfortably the new instalment fits inside it. Lenders look at a similar test, often expressed as a debt service coverage ratio, so doing it first avoids surprises.

Cost of the purpose, supported by quotes or an order book
Less your own contribution
Plus a small buffer, justified in writing
Checked against monthly surplus and existing obligations

An inflated request raises questions about purpose, increases the instalment and can make the whole file look careless. Underasking is also a problem, because returning for a second round soon after disbursal can strain the relationship.

Sizing for a new lathe

A hypothetical workshop needs a lathe, a delivery charge and extra raw material for the first batches. It totals these, deducts savings it will put in, adds a small buffer for freight changes, and finds the resulting instalment sits comfortably inside its monthly surplus. That is the figure it takes to the lender.

Key points

Build the amount from itemised costs, not from a round number or a guess about what is available.
Deduct your own contribution before deciding how much to borrow.
Test the resulting instalment against monthly surplus and existing loan obligations.
A small, explained buffer is reasonable; a large unexplained one invites questions.

Who this applies to

First-time borrowers preparing an application and unsure how large a request looks sensible.
Owners buying equipment, stock or funding a short expansion.
Businesses that were earlier sanctioned less than they asked for.

Last reviewed 3 October 2026

This answer is general information, not advice on your particular case. Terms, eligibility, and requirements change, so check the current position with the relevant institution or authority. Lalsar Holdings' financial advisory and financing work is advisory and facilitation only. Lalsar Holdings is not a lender. Sanction and disbursement of any credit facility is at the sole discretion of the partner bank, NBFC, or financial institution involved, subject to their own eligibility criteria and credit policy.