How to lower your gearing before borrowing

Step 1: repay or reduce debt

Gearing is debt divided by equity, so repaying debt lowers it directly. Clearing an expensive facility, or overpaying where allowed, shrinks the debt side and improves the ratio. See reducing loan cost.

Step 2: retain profits

Leaving profit in the business rather than drawing it all out builds retained earnings, which increases equity — the other side of the ratio. Even a period of modest retention visibly strengthens the balance sheet and lowers gearing over time.

Step 3: consider an equity injection

Introducing fresh equity — from the directors or an investor — raises the equity side and cuts gearing at a stroke. It also signals commitment to a lender. Weigh it against the dilution or personal cash involved.

Step 4: avoid piling on new debt

Each new facility raises gearing, so time additional borrowing carefully and keep it proportionate. High gearing plus thin affordability is what makes lenders cautious. See calculating gearing.

Track the improvement

Use the calculator to watch your gearing fall as you repay debt and build equity.

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