A worrying trend of overleverage
RBA figures show business debt levels hit $1.2 trillion in Q1 2024, up over 7% year-on-year. That equates to a debt-to-GDP ratio of around 58% – one of the highest levels in recent memory. More distressingly, much of this new borrowing has been driven not by productive investment, but by short-term cash flow needs for struggling companies.
The Latest Figures on Australian Business Borrowing
• Total debt levels at $1.2 trillion (up 7% YoY)
• Debt-to-GDP ratio of 58% – near record highs
• Oebt-to-GDP ratio of 58% – near record highs
While a degree of leverage can be prudent and boost growth when used responsibly, bingeing on debt for day-to-day expenses is a surefire path to insolvency if cashflows don’t quickly turnaround. In my experience advising distressed businesses, excessive debt burdens are often the root cause of their demise.
The hidden risks of too much debt
Of course, the full extent of the risks won’t be visible until economic conditions deteriorate further. Much like households that overextended during the housing boom, highly leveraged businesses are acutely vulnerable to shocks like:
• Rising interest rates eating into cash flow
• Tighter lending standards making refinancing harder
• Any revenue downturn making debt repayments infeasible
Restructuring experts around Australia puts it starkly: “One in four businesses that have loaded up on borrowings to keep the lights on are already zombie companies walking – i.e. generating just enough revenue to repay interest, not the debt itself.”
Signs you may be overextended
So how can you assess if your business has taken on too much debt? Key red flags include:
• Debt service costs over 35% of EBITDA
• Interest coverage ratio below 2x
• Debt-to-Equity ratios above 1.5x
• Revenues insufficient to repay principal debts
If any of those metrics describe your situation, request an appointment with our small business debt advisors at AVA Advisory without delay. The sooner we can analyse your situation and circumstances, the more business debt relief options will remain viable.
Getting a handle on business borrowing
What’s clear is that many businesses – inadvertently or not – made some unwise financial decisions during the pandemic that have left them dangerously overextended as the economy turns. With profits depressed and credit tightening, servicing those debts will become exponentially harder.
At AVA Advisory, we’re already seeing an uptick in restructuring and insolvency cases stemming from excess leverage. But far too many owners wait until their backs are fully against the wall to seek guidance – by which point, their options are severely limited.
My advice? Be proactive now in auditing your debt load, revenue prospects, and debt service coverage. If the numbers paint a risky picture, call in professional advisors to negotiate with lenders, explore restructuring avenues, or pursue informal arrangements with creditors. Debt issues compound quickly when unaddressed. Australia’s borrowing binge during leaner times has left many businesses skating on very thin ice should economic conditions deteriorate further. Take control now to chart a safer path forward – before debt burdens become unsustainable.
How AVA Advisory can help
If you’re concerned about your company’s debt load and financial trajectory, the team at AVA Advisory has extensive experience helping businesses get their borrowings back under control. Our services include:
• Conducting comprehensive debt evaluation & restructuring assessments
• Negotiating with lenders and creditors for debt freezes and “haircuts” (negotiating a reduction or write-off of a portion of outstanding debt owed to lenders or creditors).
• Drafting survival plans to boost revenue and profitability
• Facilitating informal creditor arrangements or voluntary administrations
• Providing turnaround CFO services to right the financial ship
No matter how daunting your debt situation may appear, there are always solutions available when addressed proactively. But the longer you wait, the fewer options will remain viable.
Don’t go it alone - Talk to the experts at AVA Advisory today
As Australia faces a potential debt crunch from over-leveraged businesses, I urge any owner feeling the weight of unmanageable borrowings to call us immediately at 1300 181 220 or schedule a free consultation online.
My team and I have helped countless business directors and owners escape the stranglehold of debt and restructure for sustained profitability. We deeply understand the pressures you’re facing – but we also know there is a path forward with the right guidance and execution.
Don’t put your business’s future at risk by ignoring debt issues until it’s too late.
Contact AVA Advisory right away so we can assess your full financial picture, outline all options on the table, and plan a roadmap to solid financial footing before creditors force your hand. The road ahead may be bumpy, but we’ll navigate it throughout it all – together – to better days.
A worrying trend of overleverage
RBA figures show business debt levels hit $1.2 trillion in Q1 2024, up over 7% year-on-year. That equates to a debt-to-GDP ratio of around 58% – one of the highest levels in recent memory. More distressingly, much of this new borrowing has been driven not by productive investment, but by short-term cash flow needs for struggling companies.
The Latest Figures on Australian Business Borrowing
• Total debt levels at $1.2 trillion (up 7% YoY)
• Debt-to-GDP ratio of 58% – near record highs
• Oebt-to-GDP ratio of 58% – near record highs
While a degree of leverage can be prudent and boost growth when used responsibly, bingeing on debt for day-to-day expenses is a surefire path to insolvency if cashflows don’t quickly turnaround. In my experience advising distressed businesses, excessive debt burdens are often the root cause of their demise.
The hidden risks of too much debt
Of course, the full extent of the risks won’t be visible until economic conditions deteriorate further. Much like households that overextended during the housing boom, highly leveraged businesses are acutely vulnerable to shocks like:
• Rising interest rates eating into cash flow
• Tighter lending standards making refinancing harder
• Any revenue downturn making debt repayments infeasible
Restructuring experts around Australia puts it starkly: “One in four businesses that have loaded up on borrowings to keep the lights on are already zombie companies walking – i.e. generating just enough revenue to repay interest, not the debt itself.”
Signs you may be overextended
So how can you assess if your business has taken on too much debt? Key red flags include:
• Debt service costs over 35% of EBITDA
• Interest coverage ratio below 2x
• Debt-to-Equity ratios above 1.5x
• Revenues insufficient to repay principal debts
If any of those metrics describe your situation, request an appointment with our small business debt advisors at AVA Advisory without delay. The sooner we can analyse your situation and circumstances, the more business debt relief options will remain viable.
Getting a handle on business borrowing
What’s clear is that many businesses – inadvertently or not – made some unwise financial decisions during the pandemic that have left them dangerously overextended as the economy turns. With profits depressed and credit tightening, servicing those debts will become exponentially harder.
At AVA Advisory, we’re already seeing an uptick in restructuring and insolvency cases stemming from excess leverage. But far too many owners wait until their backs are fully against the wall to seek guidance – by which point, their options are severely limited.
My advice? Be proactive now in auditing your debt load, revenue prospects, and debt service coverage. If the numbers paint a risky picture, call in professional advisors to negotiate with lenders, explore restructuring avenues, or pursue informal arrangements with creditors. Debt issues compound quickly when unaddressed. Australia’s borrowing binge during leaner times has left many businesses skating on very thin ice should economic conditions deteriorate further. Take control now to chart a safer path forward – before debt burdens become unsustainable.
How AVA Advisory can help
If you’re concerned about your company’s debt load and financial trajectory, the team at AVA Advisory has extensive experience helping businesses get their borrowings back under control. Our services include:
• Conducting comprehensive debt evaluation & restructuring assessments
• Negotiating with lenders and creditors for debt freezes and “haircuts” (negotiating a reduction or write-off of a portion of outstanding debt owed to lenders or creditors).
• Drafting survival plans to boost revenue and profitability
• Facilitating informal creditor arrangements or voluntary administrations
• Providing turnaround CFO services to right the financial ship
No matter how daunting your debt situation may appear, there are always solutions available when addressed proactively. But the longer you wait, the fewer options will remain viable.
Don’t go it alone - Talk to the experts at AVA Advisory today
As Australia faces a potential debt crunch from over-leveraged businesses, I urge any owner feeling the weight of unmanageable borrowings to call us immediately at 1300 181 220 or schedule a free consultation online.
My team and I have helped countless business directors and owners escape the stranglehold of debt and restructure for sustained profitability. We deeply understand the pressures you’re facing – but we also know there is a path forward with the right guidance and execution.
Don’t put your business’s future at risk by ignoring debt issues until it’s too late.
Contact AVA Advisory right away so we can assess your full financial picture, outline all options on the table, and plan a roadmap to solid financial footing before creditors force your hand. The road ahead may be bumpy, but we’ll navigate it throughout it all – together – to better days.
