How To Secure A Business Loan When You’re Already In Debt?

Naksh is a garment exporter. He had an active loan of ₹18 lakh, which he borrowed to fulfil large orders. He wants to seize a new opportunity that will require an additional ₹10 lakh.

His balance sheet showed existing debt. But his receivables and asset base were strong. So, he managed to get the new loan approved by taking a structured and transparent approach.

This is not a rare case. Many small business owners find themselves in a situation where they need fresh capital even while 

repaying earlier loans. If you’re in a similar situation, this guide will help you understand how to get a business loan even if you’re already repaying one or more debts.

You Should Know The Details Of Your Current Borrowings

Before reaching out to any lender, you must evaluate your present liabilities.

• Firstly, you should calculate your total outstanding debt.
  
  
• Then, you should note your EMI amounts and due dates.
  
  
• Now, you should compare your current interest rates with new loan offers.
  
  
• You must understand your loan-to-income (LTI) ratio. It is the percentage of your income that goes into loan repayments.
  
  Read More - Business Loan vs. Personal Loan

Srishti’s monthly income is ₹3,00,000. Her total loan EMIs are ₹1,50,000. Her current LTI is 50%. Most lenders usually prefer it under 60%.

1. Review And Improve Your Credit Profile

You might know that your credit history plays an important role in the process of your loan approval. You can take the following 

steps:

• You can check your credit report on platforms like CIBIL or Experian.
• If there are any small amounts overdue then you must clear it immediately.
• You can raise a request to fix errors if any entries are incorrect.
• You should maintain minimum balances in your bank accounts to show liquidity.

Even with debt, if your repayment record is clean, lenders will take you seriously.

2. Try To Combine Multiple Loans To Improve Cash Flow

Several loans can put pressure on your monthly income. To deal with this you can consider merging them into one. This will help you to reduce the interest burden and simplify your repayment.

Example: 

3. Prepare Detailed Financial Documents

If your documentation is strong then it will help lenders understand your business and its potential. Provide:

• Bank statements of at least 6 months
• GST filings for 1 to 1.5 years
• ITR for 2 years, if available
• List of key clients or pending orders
• Profit and loss account with projections

4. Use Collateral To Reduce Perceived Risk

If you think that unsecured borrowing has become difficult for you due to existing loans then you can consider offering security. Collateral-backed loans carry lower interest and better approval chances.

Options include:

• Business premises or factory
• Commercial or residential property
• Fixed deposits or insurance policies
• Machinery and equipment

Jatin has a property valued at ₹35 lakh. It can easily support a loan of ₹10 to 15 lakh depending on his LTI. 

The following are the types of collateral with expected loan value: