How much can your company really borrow?
Compute your self-financing capacity (CAF), your debt / CAF repayment ratio and the indicative room you have to take on a new loan.
CAF & borrowing capacity simulator
Compute your self-financing capacity (CAF), your repayment ratio and the indicative room you have for a new loan.
Additions to depreciation and provisions (non-cash charges)
Outstanding bank loans and financial debt
Banks usually want debt / CAF under 3 to 4 years
Indicative computation. A bank also weighs guarantees, sector, track record and a forward plan, not only the debt / CAF ratio.
Your financing capacity
Quick answer
How do you calculate a company’s self-financing capacity (CAF) and borrowing capacity?
Self-financing capacity (capacité d’autofinancement, CAF) starts from net income: add back depreciation and provisions, deduct reversals and neutralise asset disposals. The bank then divides your financial debt by that CAF: under 3 to 4 years is the usual banking practice. Example: €60,000 net income + €40,000 depreciation = €100,000 CAF; with €150,000 of debt (1.5 years) and a 3-year target, the indicative borrowing room is 3 × 100,000 − 150,000 = €150,000.
- CAF (bottom-up method)
- Net income + depreciation − reversals ± disposals
- Repayment capacity
- Financial debt ÷ CAF (in years)
- Usual banking benchmark
- Under 3 to 4 years of CAF
Reviewed by Samuel Hayot, chartered accountant (Ordre des experts-comptables), last updated
CAF, repayment capacity, borrowing capacity: what they mean
In French financial analysis, CAF stands for capacité d’autofinancement, i.e. self-financing capacity, roughly the “funds from operations” an English-speaking analyst would compute. It has nothing to do with the CAF family allowance fund (Caisse d’allocations familiales). It measures the internal resources generated by the year’s activity: net income stripped of entries that involve no cash in or out (depreciation, provisions, reversals, book value of assets sold).
CAF is a potential resource, not cash in the bank. In order of priority it funds loan capital repayments, replacement capex, dividends and any increase in working capital (BFR). A company can show a healthy CAF and a tight bank balance if customers pay late or inventory builds up.
Repayment capacity (financial debt ÷ CAF) expresses in years how long it would take to repay all financial debt if the whole CAF were used for it. It is the first ratio a French banker computes. Borrowing capacity follows from it: the additional debt you can carry without exceeding the ratio the lender accepts, or without annual debt service exceeding the share of CAF it is prudent to commit.
CAF and borrowing capacity formulas
- CAF, bottom-up method (from net income)
- Net income + depreciation, impairment and provision charges − reversals − proceeds from asset disposals + net book value of assets disposed − share of investment grants released to income
- CAF, top-down method (from EBITDA, excédent brut d’exploitation)
- EBITDA + other cash operating income − other cash operating expenses + cash financial income − cash financial expenses + cash exceptional income (excl. disposals) − cash exceptional expenses − employee profit-sharing − corporate income tax
- Repayment capacity
- Financial debt (loans, excl. overdrafts) ÷ CAF, in years
- Gearing (taux d’endettement)
- Financial debt ÷ equity
- Borrowing capacity, ratio approach (used by the simulator)
- (Target ratio × CAF) − existing financial debt, floored at 0
- Maximum annual debt service, cash-flow approach
- Share of CAF available for debt − existing loan instalments
- Amount you can borrow (level annuity)
- Principal = annual instalment × [1 − (1 + r)^−n] ÷ r, with r the annual rate and n the term in years
Both CAF methods give the same figure when applied to the same income statement. The simulator uses a simplified bottom-up method (net income + depreciation − reversals): if the year includes a fixed-asset disposal or an investment grant, adjust net income before entering it.
Calculate your CAF and borrowing capacity in 5 steps
The arithmetic takes minutes. What makes the difference with a French banker is the adjustments and the consistency between historical CAF and the forecast.
- 1
Start from the last tax return package (liasse fiscale)
Take the income statement and the fixed-asset and depreciation schedule. Note net income, depreciation, impairment and provision charges, reversals and, if assets were sold, the sale price and the net book value of the assets disposed.
- 2
Compute CAF and cross-check from EBITDA
Apply the bottom-up method, then check with the top-down method. Any gap points to a missed entry: a disposal gain not neutralised, a grant release, a misclassified exceptional charge.
- 3
List your real financial debt
Add up the outstanding principal on every loan, including state-guaranteed loans (PGE), honour loans and, depending on the bank, lease commitments. Keep shareholder current accounts (often treated as quasi-equity if subordinated) and available cash separate.
- 4
Measure the current ratio and the room to the target
Divide financial debt by CAF. If you are at 1.5 years and the bank accepts 3, your room is 1.5 years of CAF. This is what the simulator computes, without considering the term or rate of the new loan.
- 5
Cross-check with annual instalments
Compute the instalments on existing loans, set the share of CAF you are willing to commit to debt, then convert the available instalment into principal with the level-annuity formula, at the rate and term offered by the bank. Keep the more prudent of the two amounts.
Worked example: an SME with €100,000 of CAF
Using the simulator default values: €60,000 net income, €40,000 depreciation, no reversals, €150,000 of financial debt. We assume the existing debt amortises over 5 years at 4% and a new loan would be granted over 7 years at 4% (hypothetical rate, replace it with your bank’s actual offer).
| Step | Calculation | Result |
|---|---|---|
| CAF (bottom-up method) | 60,000 + 40,000 − 0 | €100,000 |
| Current repayment capacity | 150,000 ÷ 100,000 | 1.5 years |
| Borrowing capacity, ratio approach (3-year target) | 3 × 100,000 − 150,000 | €150,000 |
| Instalments on existing loans | €150,000 over 5 years at 4% | €33,694 |
| Maximum instalments if 50% of CAF goes to debt | 50% × 100,000 | €50,000 |
| Instalment available for a new loan | 50,000 − 33,694 | €16,306 |
| Amount you can borrow, cash-flow approach (7 years at 4%) | 16,306 × [1 − 1.04^−7] ÷ 0.04 | ≈ €97,870 |
| Ratio after the new loan | (150,000 + 97,870) ÷ 100,000 | ≈ 2.5 years |
Reading: the ratio approach shows €150,000 of room, the instalment approach about €98,000. The gap comes from the existing loans being repaid quickly (5 years), which already absorbs a third of CAF. With the bank, present the more prudent figure, or ask for a longer term if the asset financed justifies it. Had the year included selling a vehicle for €20,000 with a net book value of €12,000, CAF would be 60,000 + 40,000 − 20,000 + 12,000 = €92,000, and every margin would shrink accordingly.
The benchmarks a French banker looks at
None of these thresholds is a legal standard. They are banking practice and management benchmarks that vary with sector, size, collateral and the economic cycle.
| Indicator | Usual benchmark | What the bank infers |
|---|---|---|
| Financial debt ÷ CAF | Under 3 years: comfortable; 3 to 4: watched; above: stretched | Ability to repay without relying on future improvement |
| Financial debt ÷ equity (gearing) | Often expected around 1 or below | Risk sharing between shareholders and lenders |
| Loan instalments ÷ CAF | Common prudence rule: no more than half of CAF | Room left to invest and absorb a weak year |
| CAF trend over 3 years | Stable or rising | Recurrence of the cash flow that repays the loan |
| Forecast CAF ÷ future instalments | Coverage above 1 with a cushion | Consistency of the financing plan presented |
The credit decision also weighs the company’s Banque de France rating, banking history, collateral (personal guarantee, pledge, Bpifrance guarantee) and the quality of the forecast. These benchmarks help you prepare the discussion, not settle it.
Best practices before applying for a loan
- Compute CAF over the last three financial years: a one-off high CAF (disposal, grant, provision reversal) will not convince.
- Present both the debt ÷ CAF ratio and the schedule of future instalments including the requested loan: that is exactly what the credit analyst will rebuild.
- Match the loan term to the asset’s useful life: financing software over 7 years or a building over 5 unbalances the financing plan.
- Deduct unavoidable replacement capex (vehicles, equipment) from CAF before concluding you have borrowing room.
- Anticipate the new investment’s effect on future CAF: extra depreciation and interest, but also the additional margin expected.
- Reconcile CAF with cash: if CAF is good but cash is low, fix working capital (customer terms, inventory) before borrowing.
Mistakes that distort borrowing capacity
Confusing CAF with cash
CAF is a potential flow computed from the income statement. It ignores payment terms, inventory and capital repayments. €100,000 of CAF can coexist with an overdrawn bank account.
Not neutralising disposals
A disposal gain inflates net income but will not recur. Deduct the sale proceeds and add back the net book value, otherwise CAF and borrowing capacity are overstated.
Reasoning only on the debt stock
The debt ÷ CAF ratio ignores loan terms. Short loans can respect the ratio while absorbing most of CAF every year. Always cross-check with instalments.
Leaving out part of the debt
Guaranteed loans, leases, amounts owed to a holding company or non-subordinated shareholder accounts are often added back by the analyst. Omitting them gives a flattering ratio the bank will correct.
Treating the banking benchmark as a rule
The 3 to 4 year threshold is practice, not a standard. A highly recurring business may obtain more; a cyclical business or a young company will be judged more strictly, even under 3 years.
Frequently asked questions about CAF and borrowing capacity
Is this CAF related to the French family allowance fund?
No. On this page CAF means capacité d’autofinancement, a company’s self-financing capacity: the resources its activity generates over a financial year. To estimate family benefits, housing aid or the prime d’activité, use the official simulator of the Caisse d’allocations familiales instead.
What is the difference between the bottom-up and top-down CAF methods?
They reach the same figure. The bottom-up method starts from net income, adds back non-cash charges (depreciation) and removes non-cash income (reversals) and the effect of disposals. The top-down method starts from EBITDA and works down the income statement keeping only cash income and cash expenses. Running both checks the calculation.
What financial debt to CAF ratio do French banks accept?
In common practice, a ratio under 3 years is comfortable, 3 to 4 years is watched, and beyond that a new loan becomes hard to obtain. It is not a regulatory standard: each bank sets its own policy depending on sector, collateral and track record. Example: €150,000 of debt for €100,000 of CAF gives 1.5 years.
How do I work out how much I can borrow from my CAF?
Two approaches complement each other. Ratio: (target ratio × CAF) − existing debt. Cash flow: available instalment = share of CAF for debt − current instalments, then principal = instalment × [1 − (1 + r)^−n] ÷ r. A €16,306 available instalment over 7 years at 4% gives about €97,870. Keep the more prudent result.
What share of CAF can go to loan repayments?
A frequently used prudence rule is that instalments should not exceed half of CAF, leaving room to replace equipment and absorb a weaker year. It is only a benchmark: a very stable business can go further, while a company that must reinvest heavily should stay below it.
What is gearing (taux d’endettement)?
Gearing divides financial debt by equity. A ratio of 1 means lenders and shareholders fund the business equally. Banks often look for a ratio around 1 or below, alongside debt ÷ CAF: the former measures balance-sheet structure, the latter the ability to repay.
Does a positive CAF mean the company has cash?
Not necessarily. CAF ignores rising receivables, inventory, capital repayments and capex. A fast-growing company can have €100,000 of CAF and falling cash if its working capital requirement (BFR) grows by more than €100,000 over the year.
What if my CAF is negative?
A negative CAF means the business consumes more resources than it generates. A conventional loan will be very hard to obtain. Priorities are restoring margin and costs, short-term cash, then possibly an equity injection by shareholders before any new debt.
How does a start-up estimate its borrowing capacity?
Without a track record, the bank relies on the forecast CAF in the business plan, usually over 3 years, and on the founders’ equity contribution. Compute forecast CAF (expected net income + expected depreciation) and check it covers the requested loan’s instalments with a cushion from the first full year.
Sources and references
Reading your CAF and repayment capacity
Your self-financing capacity (CAF) is the cash your activity generates on its own, before financing decisions: net income plus non-cash charges (depreciation and provisions), minus reversals. Banks divide your financial debt by your CAF to read your repayment capacity in years. Under 3 years is comfortable; over 4 years signals a stretched balance sheet.
The figures that drive your capacity
- CAF = net income + depreciation & provisions − reversals
- Repayment capacity = financial debt / CAF (in years)
- Banking benchmark: under 3 healthy, 3 to 4 to watch, over 4 stretched
- Indicative borrowing room = (target × CAF) − existing debt
- CAF first feeds debt repayment, then dividends and investment
Why run this simulator?
A clear CAF lets you:
- Walk into the bank with the ratio it will compute itself, before it does.
- Size a realistic loan instead of being turned down on a stretched ratio.
- Check that your CAF covers your annual debt service with a margin.
- Decide between self-financing, borrowing or staggering an investment.
A chartered accountant to build your financing file
Hayot Expertise prepares the forward plan and the figures the bank expects, and defends your file. We turn your CAF into a financing strategy.