What is a good gearing ratio for a small company?

Q: Is high gearing always risky?

Not always — stable, cash-generative businesses can carry more debt safely, and gearing up can boost returns. The risk is that high gearing leaves little cushion if income falls, so it demands reliable cash flow.

Q: How do lenders view gearing?

As one input among several. Rising gearing with flat profits worries them; steady gearing with strong cash flow does not. Credicorp weighs real trading and affordability rather than gearing alone.

2 min read

Debt vs equityWhat it compares

<50%Often comfortable

ContextSector matters

What it means

Gearing (or leverage) measures borrowing against the owners' stake — commonly debt divided by equity, or debt as a share of total capital. Higher gearing means more of the business is funded by debt, which amplifies both returns and risk. Calculate yours with the gearing-ratio calculator.

What this means for your company

Below roughly 50% gearing is usually seen as prudent for an SME, but the right level varies by sector and by how stable your cash flow is — a business with steady, contracted income can carry more than a volatile one. Watch the trend more than the absolute number: gearing creeping up while profits stay flat is the warning sign. Pair it with interest cover for the full picture.

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 high gearing always risky?

Not always — stable, cash-generative businesses can carry more debt safely, and gearing up can boost returns. The risk is that high gearing leaves little cushion if income falls, so it demands reliable cash flow.

How do lenders view gearing?

As one input among several. Rising gearing with flat profits worries them; steady gearing with strong cash flow does not. Credicorp weighs real trading and affordability rather than gearing alone.