Net margin (also called net profit margin) is the proportion of total revenue that becomes net profit once every expense — including cost of goods sold, overheads, depreciation, interest, and tax — has been subtracted. It is expressed as a percentage: net profit divided by revenue, multiplied by 100.
Why net margin matters
Net margin is often called the bottom-line measure of a business's efficiency. A company with high revenue but a wafer-thin net margin is vulnerable to any cost increase or revenue dip. A lender reviewing a credit application will look at net margin alongside gross margin to understand where profit is leaking. For example, a healthy gross margin with a poor net margin may indicate excessive overheads or high interest costs from existing debt.
Sector benchmarks vary widely
There is no universal "good" net margin. Supermarkets and fuel retailers typically operate on margins below 5%, while professional services or software businesses may achieve 20–30% or more. Comparing a company's margin against sector peers gives a more meaningful picture than the raw figure alone. If you are preparing financial information for a credit application, knowing your sector's typical range can help frame your numbers clearly.
Net margin and debt serviceability
A lender will assess whether the business generates enough net profit — or, more precisely, enough EBITDA (earnings before interest, tax, depreciation, and amortisation) — to cover repayments on any new facility comfortably. A thin net margin does not automatically rule out lending, but it does mean the debt service cover needs careful examination. Short-term products like the Credicorp Business Loan are designed to be repaid quickly, which can limit the drag on margin.
We lend only to UK limited companies and LLPs, and the loan is to the company with no director personal guarantee. As business finance outside the consumer-credit regime, it is not covered by the Financial Ombudsman Service or FSCS.
See also: What is gearing in business finance?, What is amortisation in business lending?.