Lender States I Have Too Much Existing Debt
When companies have too much debt, financial intuitions often become leery to lend these firms additional funds. However, businesses that are young and growing often find this as a barrier to their growth while the need for capital may be healthy.
As a rule of thumb, for every $1 business owners have invested in their company, banks are only willing to invest $2. Financial institutions call this the Debt-Equity Ratio. There are two basic ways to solve this issue. Using some government-backed programs companies may be able to achieve a 1:4 Debt-Equity ratio.
- Increase equity in the company.
- Use mezzanine financing programs.