What if your business is performing well and you’re ready to take the next step, including buying new equipment, expanding your premises, or a working capital boost to capitalise on a pipeline opportunity? You apply for a business loan, but the lender comes back with a decline. The reason? High existing debt levels.
It’s a frustrating outcome. However, a business loan declined due to existing debt isn’t a judgement on your business. It’s a signal about your current debt structure. Lenders look at how much of your monthly surplus is already committed to repayments. When that number is too high, there’s simply not enough headroom on paper for a new facility, regardless of how well the business is trading.
This debt structure can be changed. Learn what this particular decline means, why it happens, and what steps you can take to move forward.
What It Means When Existing Debt Causes a Decline
When a business loan is declined due to existing debt, the lender’s concern centres on serviceability, specifically, whether the business generates enough monthly surplus to comfortably cover a new repayment on top of what’s already committed.
Too much existing debt causing a business loan decline isn’t always about the total amount owed. It’s often about how that debt is structured. Short-term, high-cost facilities with daily or weekly debits can consume cash quickly, leaving very little visible headroom even when the underlying business is profitable. On paper, the numbers don’t stack and that’s what the credit assessor is working from.
It doesn’t have to be final. But it does mean the debt position needs to be addressed before resubmitting.
How Debt Stacks Up Against You
High debt levels leading to a declined loan rarely happen overnight. They tend to build gradually and often as a result of funding decisions that made sense at the time but have since compounded into a structural problem. It is a pattern we see frequently with Perth trades and construction businesses, particularly those that have taken on multiple short-term facilities to fund equipment or manage cash flow gaps across project cycles.
The most common patterns include:
Stacked short-term or high-cost facilities absorbing cash
Multiple advances with daily or weekly debits add up fast. What looks manageable facility-by-facility can become a significant monthly drain when viewed in aggregate which is exactly how an underwriter sees it. This is especially common among WA businesses that have stacked short-term facilities to fund equipment, with each facility appearing manageable in isolation but creating significant combined drag.
Working capital used to fund long-life assets
When vehicles, equipment, or fit-outs are funded through working capital solutions rather than asset finance, it reduces the cash available for day-to-day trading needs. The asset remains, but the working capital is gone and the repayment schedule doesn’t match the asset’s useful life.
Unused limits left open
An unused overdraft or line of credit still counts as a commitment in a lender’s assessment. Many business owners don’t realise that an unused $50,000 overdraft still appears as a $50,000 commitment in a lender’s serviceability calculation even if the balance has never been drawn. Open limits inflate the assessed debt exposure, and closing facilities you no longer need before applying can meaningfully improve your assessed position.
None of these are unusual, and none of them are irreversible. They’re structural issues, and structural issues can be restructured.
Is Debt Consolidation the Right Move for Your Business Loan?
Before exploring the individual fix approaches, it’s worth understanding whether debt consolidation for business loan approval is the right strategy for your situation. Consolidation works best when you have multiple facilities with overlapping purposes, different repayment schedules, and high combined monthly commitments.
Debt consolidation for business loan purposes typically involves combining several facilities into a single, lower-commitment loan reducing monthly outgoings, simplifying the lender’s assessment, and freeing up the headroom needed to support new borrowing. For Perth businesses with stacked short-term debt, this can make the difference between a second decline and a successful resubmission.
If you’re unsure whether debt consolidation is the right approach, get in touch with our team for a confidential review before making any changes to your existing facilities.
Ways to Fix the Problem Before You Reapply
Fixing a business loan declined due to high existing debt typically involves one or more of the following approaches. In many cases, you may need to address all of them.
Refinance existing facilities to longer terms
Refinancing existing facilities to longer repayment terms reduces the monthly commitment, freeing up cash flow and improving the serviceability picture. This doesn’t necessarily mean paying more over time. It means creating the headroom that allows a new facility to sit comfortably within the business’s surplus.
Consolidate multiple facilities into one
Multiple facilities with overlapping purposes and different repayment schedules create complexity and cash drag. Debt consolidation for business loan approval involves combining them into a single, clear repayment schedule making the position easier for both the business to manage and the lender to assess. As part of this process, closing any unused limits removes the inflated commitment from the lender’s calculation.
Match each facility to its asset’s useful life
If working capital has been used to fund vehicles, equipment, or other long-life assets, moving those commitments to proper equipment finance restores working capital to its intended purpose, which is trading. The repayment term then aligns with the asset’s useful life, and the cash flow picture improves accordingly.
Stage your funding request over time
If your goal is to upgrade equipment or take on a significant new commitment, phasing purchases over time, rather than seeking everything at once, keeps the debt coverage ratio healthy and gives the lender a more manageable position to assess.
Working through these steps with an experienced broker before resubmitting makes a significant difference. Southshore Finance works closely with clients to map the existing debt structure, identify the most effective path to consolidation or refinance, and present a resubmission that reflects the improved position clearly.
What to Pull Together Before Resubmitting
Before resubmitting after a high debt levels decline, ensure the following documentation is ready and consistent:
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- Payout letters and current statements for all existing facilities
- A refinance or consolidation schedule showing the proposed new structure
- Evidence of any limits closed or facilities paid out
- Updated 12-month cash flow forecast showing improved monthly headroom
- Year-to-date financial statements (P&L and Balance Sheet)
- Aged receivables and payables schedule
The updated cash flow forecast is critical. It should clearly show the refinanced or consolidated position in place and that the business has sufficient surplus to service the new facility comfortably, including in softer trading months. For more on what lenders assess in a cash flow forecast, see our guide on business loan declined due to cash flow or serviceability.
How Long Before You Reapply?
Unlike other decline reasons that can be addressed and resubmitted quickly, a high existing debt position typically needs a short settling period before you reapply.
The rule of thumb is to wait until after the refinance or consolidation settles, then allow one to two statement cycles to confirm the improved position is reflected in the numbers. This gives the credit assessor something concrete to work from, not a plan for what the debt structure will look like, but evidence of what it actually looks like now. That distinction matters in a credit assessment.
The wait is worth it. Resubmitting too early before the restructure has had time to show through in the statements risks a second decline for the same reason.
Let’s Look at Your Options Together
If your business loan has been declined due to high existing debt levels, the structure of that debt, not the business itself is most likely the issue. And structure can be changed.
At Southshore Finance, we work with businesses across Perth and regional Western Australia to untangle complex debt positions, identify the right refinance or debt consolidation approach, and build resubmissions that reflect the business’s true capacity to service new lending. With accreditation across a wide panel of banks, non-bank lenders, and private financiers, we have the relationships and the experience to find the right fit.
Explore our Business Finance page to learn more about the lending solutions we support, or read our full overview of common loan decline reasons to see whether other factors may also need attention before you resubmit.
When you’re ready to talk, get in touch with our team for a no-obligation conversation. A decline due to existing debt doesn’t have to be the end of the story and with the right restructure in place, it rarely is.