What are the signs a business is borrowing too

2 min read

Debt to repay debtRed flag

Gearing upWatch the trend

Act earlyBest window

The warning signs

Watch for: gearing climbing year on year; repayments consuming your cash buffer so any shock hurts; taking new borrowing to service old borrowing; a falling debt-service coverage ratio; and stacking several small facilities. Any one may be fine in isolation; together they signal the debt is outgrowing the business.

What to do about it

Act while you still have options. Map every facility, rate and end date; consolidate expensive short-term debt into one cleaner arrangement where it lowers the total cost — check with the consolidation calculator. Talk to lenders early about restructuring. If debt is genuinely unsustainable, get free debt advice rather than borrowing more to paper over it.

What it means for you

Credicorp lends to your company, not to you personally, and takes no personal guarantee. See business loans or apply online.

Frequently asked questions

Is taking a new loan to repay an old one always bad?

Not if it genuinely lowers your cost or extends the term to affordable levels — that is refinancing. It is a red flag only when you are borrowing to cover repayments you otherwise can't meet, which just delays the problem.

What gearing level is too high?

There is no universal figure, but gearing rising steadily while profits stay flat is the concern. Compare against your sector and, more importantly, against whether cash flow comfortably covers the repayments.