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:

5. Choose A Lender That Matches Your Profile

There are a few lenders who are better suited to work with you if you have debt already. Some government schemes also support loans without collateral for small businesses.

Also Read - How to Choose the Best Business Loan for Your Industry

The following is the lender comparison based on flexibility:

6. Show A Viable Repayment Plan

Lenders want to know how you will repay the new loan in addition to your current debts. Your clear cash flow strategy gives them the comfort to approve your request. 

Mention:

• Your increase in monthly revenue is due to upcoming orders or partnerships.
• Your reduction in operational expenses.
• Your buffer savings or reserve fund.
• Your plan to make part-prepayments when business picks up.

Final Thoughts

If you think that you are missing financing opportunities due to debt then you are wrong. It just means that you need to:

• Plan better,
• Explain more, and
• Present your case carefully.

You must show your lender that your business is capable of handling a new loan. You should show that your cash flow is healthy. 

Also, that you will use the new loan for growth and not to delay a problem.

You do not have to worry much; with the help of the right approaches mentioned above, you can easily qualify for new funding.

FAQs

1. What’s the ideal LTI for loan eligibility?

Try to keep it below 60% for best results.

2. Should I clear small debts before applying again?

Yes, it improves your credit report quickly.

3. Do fintech lenders accept borrowers with prior debt?

Many do, especially if income is steady.

4. Is debt consolidation safe?

Yes, if planned well, it reduces the EMI burden.

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About the Author

LoansJagat Team

We are a team of writers, editors, and proofreaders with 15+ years of experience in the finance field. We are your personal finance gurus! But, we will explain everything in simplified language. Our aim is to make personal and business finance easier for you. While we help you upgrade your financial knowledge, why don't you read some of our blogs?