Quick answer
Lenders decline when existing debt is high relative to what the business earns or owns, because another loan could stretch repayments too far. Options include restructuring existing debts onto longer terms, consolidating several into one, using property equity, or reducing the amount requested. The goal is a total repayment load the business can comfortably carry.
Key points
- Lenders compare total debt and repayments with income and equity
- Long-term debt is viewed differently from expensive short-term debt
- Restructuring can lower repayments without new borrowing
- Property equity can absorb debt that cash flow cannot
Debt that cash flow cannot carry
There is a difference between owing a lot and owing too much. A business with a large but long-term loan over its premises may be in excellent shape. A business with smaller debts spread across several expensive short-term facilities may be struggling. Lenders try to tell the two apart by looking at what the debts cost each week or month compared with what comes in.
Two ways lenders measure debt
| Measure | How it works |
|---|---|
| Repayments to deposits | Total loan repayments as a share of average monthly deposits |
| Loan to value | Total debt secured against a property divided by its value |
A business can fail the first test and pass the second. That is why property-secured lending often helps when cash flow lenders say no: it uses equity to absorb debt that weekly cash flow cannot.
Your options
- Restructure short-term facilities onto a longer term so repayments fall. See business loan refinance.
- Consolidate several debts into one. See business debt consolidation.
- Use property to clear expensive debts, from $20k up to $5m, with interest prepaid or added to the loan.
- Ask for less and fund the rest from improved cash flow over time.
Run the numbers first
Use the repayment calculator to see the share of deposits your current repayments take, and the property equity calculator to see whether there is room in any property you own.
An illustrative example
A plumbing business carried a vehicle loan, an equipment loan and two short-term working capital loans. A cash flow lender declined a further request for funds to take on a large commercial job. The owners had equity in an investment property. A second mortgage paid out both short-term loans and funded materials for the new job, leaving the fairly priced vehicle and equipment loans in place. Weekly repayments fell sharply even though total borrowing barely changed.
When the problem is bigger than the loan
If the business is consistently losing money, more debt rarely fixes it. Talk to your accountant, and if the company may be unable to pay its debts, get professional advice early. ASIC has information for directors on their obligations.
Get a clear view
Enquire in a minute and list your current debts and what you need. No credit check to ask, a human reviews it, and there is no lender auction. Talk about your debt load.
Frequently asked questions
How do lenders measure if I have too much debt?
They look at total repayments against average deposits, and for property loans, total secured debt against property value. Some also review debt against annual turnover.
Does a home loan count as business debt?
If a director guarantees the business loan, lenders often consider personal commitments too, especially for small businesses.
Can I borrow more if most of my debt is long term?
Often, yes. A long-term equipment or property loan with modest repayments weighs less than several short-term facilities.
What if the business genuinely has too much debt?
Speak to your accountant early. Borrowing more is not always the answer, and early advice keeps more options open.
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