Book contents · Chapter 8 of 11
Banks lend against evidence: up-to-date accounts, a forecast that shows how the loan will be repaid, and an owner who understands the numbers. Many profitable SMEs are refused or delayed because they cannot provide that quickly, not because the business is weak. Monthly management accounts, a cash forecast and a clear plan turn a finance request from a favour into a straightforward decision.
What are the signs you are not ready to ask the bank for finance?
Sound familiar? These are the signs owners describe most often.
- A loan or overdraft request was refused, delayed or cut back.
- The bank asked for management accounts or a forecast you didn’t have.
- Your latest audited accounts are many months old when you apply.
- You use personal guarantees or personal savings to fund the business.
- You put off investment because finance feels like too much hassle.
Why do banks refuse finance to profitable small businesses?
Lenders look forward, accounts look back
Audited accounts show last year. A lender needs to know how the loan will be repaid from future cash. Without a forecast they have to guess, and they guess cautiously.
Old numbers raise questions
By the time annual accounts are audited and filed, they can be well over half a year old. A bank will usually ask for something more recent, and if the books are behind, the application waits.
The owner can’t answer the questions
What is your gross margin? Your debtor days? How much overdraft headroom is left at the worst point of the year? An owner who answers in figures builds confidence. One who answers in impressions does not.
Asking at the worst moment
Many requests are made when cash is already tight, which is exactly when a lender is most cautious. Finance is easier to arrange before it is urgent.
What makes a lender’s decision easier
What many SMEs bring to the bank, next to what removes the reasons to say no or to wait.
| Area | What many SMEs bring | What makes the decision easier |
|---|---|---|
| Latest results | Last year’s audited accounts | Monthly management accounts to last month, alongside the audited accounts |
| Repayment | An assurance that business is good | A twelve-month cash forecast showing the repayments covered |
| Purpose | A general need for funds | A clear use, cost and expected return |
| Key numbers | Impressions | Margin, debtor days and cash headroom, in figures |
| Timing | When cash is already tight | Months before the money is needed |
None of this guarantees a loan. It removes the reasons a lender has to say no, or to wait.
Two-minute self-check
Tick the statements that are true for your business today.
How do you prepare a small business for a bank loan?
In Numbers-First Management, these are the parts of the framework that do most of the work on this pain. Each one is explained in Part 2.
Year Map
A plan for the year in numbers, ending in cash: the core of the forecast a lender wants to see.
Read the Year Map chapter →Weekly Dials
Cash, margin and debtor days are always current, so the bank’s questions have ready answers.
Read the Weekly Dials chapter →Money Engine
Shows what the investment will earn, job by job, so the case for the loan is in figures.
Read the Money Engine chapter →Money is only half of what growth needs. The other half is people, and in Malta they are the scarcest resource of all.
Chapter 9: Finding and keeping good people →Is this costing your business?
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