High gearing-disadvantages

• If interest rates increase, payments become more costly, reducing profits available to shareholders/less money available to re-invest back into the business
• Investors can be reluctant to invest in companies with high gearing ratios as they may feel there is a little chance of return
• Many company failures over recent years have been accompanied by high gearing ratios. High gearing leads to high interest repayments and as soon as profits start to fall, the banks get nervous, and can withdraw their support