Quick answer
The return on a growth loan is the extra gross profit the funded move earns over the loan term, minus everything you repay — the amount borrowed plus the total cost of finance — expressed against what you put at risk. If the move's cumulative gross profit exceeds the total repaid, with room for a slow start, borrowing has paid off. If it doesn't, the loan has only moved money around.
Key points
- ROI on a growth loan compares extra gross profit with the amount borrowed plus the total cost of finance.
- Use gross profit after new running costs — never revenue.
- Measure over the loan term, and check the timing month by month, not just the total.
- A positive ROI with a painful cash gap can still hurt the business.
- Simple test
- Extra gross profit over term ÷ (borrowed + finance cost)
- Above 1.0×
- The move pays for itself within the term
- Tool
- Growth ROI calculator
Every growth loan is a bet that the thing you’re funding will earn more than it costs. Return on investment (ROI) is how you check the bet before you place it. The maths isn’t complicated, but a few common shortcuts — using revenue instead of profit, ignoring the timing, forgetting the cost of finance — can make a poor move look brilliant on paper.
What’s the simple formula?
For a growth move funded with borrowed money:
ROI = (extra gross profit over the term − amount borrowed − total cost of finance) ÷ (amount borrowed + total cost of finance)
Or, as a quick multiple:
Payback multiple = extra gross profit over the term ÷ (amount borrowed + total cost of finance)
A multiple above 1.0 means the move earns back everything it costs within the loan term. Below 1.0, it doesn’t — the rest of the business is subsidising the repayments.
“Extra gross profit” means the additional revenue the move produces, multiplied by your gross margin, minus any new running costs the move brings (wages, rent, subscriptions, fuel). It’s the same measure our Growth ROI calculator uses.
Why use the total cost of finance instead of a rate?
Because the growth move doesn’t earn a percentage — it earns dollars. The total cost of finance is every dollar of interest and fees over the whole term, added up. It’s the figure that sits directly against the extra profit, and it makes loans with different structures, fees and terms comparable. Our total cost of finance guide shows how to get it from any quote.
A worked example (illustrative)
A landscaping business borrows $120,000 for a compact excavator, a tipper and a trailer, over three years. The quote shows a total cost of finance of $24,000, so the total repaid is $144,000.
The owner expects the equipment to add $16,000 a month in extra revenue by letting the crew take on bigger jobs, at a 50% gross margin — $8,000 of gross profit. Fuel, servicing, insurance and an extra labourer’s time add $3,500 a month. The monthly boost is $4,500.
Over 36 months that’s $162,000 of extra gross profit, if it runs at full speed from day one. The payback multiple is $162,000 ÷ $144,000 = 1.125, an ROI of 12.5% over the term — and the business still owns the equipment.
Now allow for reality. If it takes three months to fill the bigger-job pipeline, the total drops to roughly $150,000. If, on top of that, the boost averages 20% below plan, it falls to about $120,000 — below the $144,000 repaid, though the machines still have resale value. The move works, but not with much room for error. A longer term, a used excavator or pre-booked work would widen the margin.
That’s the pattern with ROI on borrowed money: the headline number matters less than how it holds up when things run slower than hoped. Read stress-testing a growth plan for a structured way to test it — and when yours holds up, see what your plan could qualify for.
What three numbers decide whether borrowing pays off?
| Number | Why it matters | Where people go wrong |
|---|---|---|
| Gross margin on the extra work | Converts revenue into money that can repay the loan | Using revenue, or the business-wide margin when the new work differs |
| Ramp-up time | Repayments start before full benefit | Assuming full speed from month one |
| Total cost of finance | The full price of the money in dollars | Comparing headline figures instead of the total repaid |
Get these three honest and the ROI calculation is usually close enough to decide on.
Isn’t ROI the same as payback?
They’re related but answer different questions. ROI tells you how much better off you’ll be by the end. The payback period tells you when the move has earned back what it cost. A move can have a strong ROI and a long payback (a second location that matures slowly), or a modest ROI and a fast payback (a short marketing burst). You want both to look reasonable — and you want the payback to land inside the loan term.
What does ROI leave out?
- Residual value. Equipment, vehicles and fit-outs keep some value when the loan is repaid, so ROI understates the benefit of asset purchases.
- Strategic value. A move that locks in a major customer, keeps a competitor out or develops a manager may be worth more than its direct profit.
- Risk. Two moves with the same ROI can carry very different chances of success. A signed contract is worth more than a hopeful forecast.
- The cost of doing nothing. Sometimes the real comparison isn’t “borrow or not” but “grow now or watch the opportunity go”. See borrow now or save up.
How should you use ROI in a funding conversation?
Lenders don’t need a spreadsheet masterpiece, but a clear, conservative ROI case helps. It shows you’ve thought about how the repayments will be met and that you understand your margins. It also helps a lending specialist suggest the right structure: a move that pays back in eight months needs a very different facility from one that takes four years.
Found a move that pays for itself?
If your numbers show a growth move earning back more than it costs, with room to spare, that’s exactly the kind of plan we like to fund. Tell us what it is, the amount and what you expect it to earn.
Sending your plan takes about a minute and doesn’t show up on your credit report. We won’t broadcast it to a list of lenders either — a real person looks at the numbers and calls you. Put the same honest figures on the form that you used in your ROI maths, and we can match you properly the first time.
Frequently asked questions
How do you calculate ROI on a business loan?
Add up the extra gross profit the funded move produces over the loan term (after any new running costs). Subtract the amount borrowed plus the total cost of finance. Divide the result by the amount borrowed plus finance cost to get a percentage return, or simply compare the two totals as a multiple.
Is it better to measure ROI on revenue or profit?
Always profit. Revenue has to pay for materials, stock, direct labour and delivery before anything is left to repay a loan. Gross profit after the move's own running costs is the only money available to repay the finance.
What is a good ROI on borrowed money for growth?
There's no single number, but a move whose extra gross profit covers the full amount repaid comfortably inside the term — with room for it to arrive later or smaller than planned — is generally one worth doing. A thin margin for error is a warning sign.
Why does timing matter if the total ROI is positive?
Because repayments start straight away and the extra profit often doesn't. A move that pays off handsomely over three years can still create a cash squeeze in its first six months. Check the month-by-month path, not just the end result.
Should I include tax in the ROI calculation?
For a first test, work before tax. It keeps the result conservative and simple. Then ask your accountant how deductions, such as the instant asset write-off for eligible assets, change the after-tax picture.