Serviceability
What does serviceability mean in business lending?
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BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED
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Serviceability is a borrower's ability to meet a loan's interest and scheduled principal from its own cash flow — tested on commercial lending through debt service cover where principal is scheduled, and interest cover where it is not. On a term loan it is almost the whole credit question, because the security matters only if serviceability fails. A desk tests it at a higher interest rate and against the weaker years rather than the average, and reads a forecast that services comfortably over the year but exhausts the facility in one month as a serviceability problem too.
BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.
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