You ask your bank for £60,000. Instead of an answer you get a list: filed accounts, management accounts to a recent date, bank statements, a forecast, an aged debtors report.

Almost everything on that list answers one of four questions. Once you know the questions you can work out in advance what your own numbers are going to say. The exact list varies by lender and by the size of the facility, so read this as the thinking behind the request rather than a checklist.

One: can you pay this out of trading?

A lender is not primarily interested in whether you could repay by selling something. They want to know whether the ordinary running of the business throws off enough spare money each year to cover the repayments, with room left over.

The figures below are invented to show the mechanics. They are not a claim about any real business.

Say you turn over £40,000 a month and net profit comes out at £3,000 a month, so £36,000 a year. Your lender quotes repayments of £1,150 a month, which is £13,800 a year. Profit covers the repayments about 2.6 times over.

Whatever a particular lender calls that ratio, it is close to the first thing anyone looks at. A business covering its repayments twice over can absorb a bad quarter. One covering them 1.1 times cannot.

Two things move that figure before you apply. If your £36,000 of profit depends on you taking less pay than the job is worth, expect it to be adjusted back down, so do that sum yourself first. And if a one-off cost is sitting in the ordinary run of trading, be ready to point at it by line and date rather than asking for it to be taken on trust.

Two: will the cash be there in the month the payment leaves?

A business can cover its repayments 2.6 times on paper and still miss one. Repayments leave on a fixed day. Customer money arrives when the customer decides. Put a VAT quarter in the same week as a payroll run and a comfortable annual figure becomes a tight month.

So a month by month forecast carries more weight than an annual profit figure, and one produced by dividing last year's profit by twelve is worth very little. What a lender wants is a forecast where the low point is visible and you clearly already knew it was there. A tight March with a note explaining it reads as competence. A flat line reads as a guess. Keep your cash cover to hand beside it.

Three: what is already claimed against the business?

New borrowing sits behind everything already there, so a lender needs the full picture: existing loans, hire purchase and leases, invoice finance, director's loans, and any personal guarantee you have signed.

The balance sheet is where most of that shows up, and the line that matters is the split between what falls due within one year and what falls due after more than one year. £80,000 of debt all falling due in the next twelve months is a completely different position from £80,000 spread over five years, even though the headline total is identical.

Invoice finance is the easiest item to forget, because the drawn amount often does not appear as a loan on the balance sheet at all: it sits inside the debtors ledger. If you have a facility, say so rather than waiting for it to be found.

Four: do your own numbers agree with each other?

This causes more delay than any of the others, and it has nothing to do with how well the business trades. Your filed accounts, management accounts, bank statements and VAT returns are four descriptions of one business. When they disagree and nobody can say why, the next step is a question, and a question costs weeks. Three cases come up again and again:

• Management accounts that no longer tie to the last filed year end, because year end adjustments were posted by the accountant and never carried through.
• A balance sheet section sitting in the wrong direction, a liabilities section in credit or an asset section negative. Sometimes that is genuine, and an overpaid credit card really does sit as a negative liability. It still needs a sentence of explanation rather than a tidy up.
• An aged debtors list carrying invoices everyone internally knows will never be paid, which overstates your debtors and your profit at the same time.

None of these is a reason to decline a loan. Every one is a reason to ask another question, and you want those answered inside the pack rather than in an email three weeks later.

Before you apply

• Work out the repayment coverage sum above yourself, on the numbers you are about to hand over.
• Reconcile your management accounts to the last filed year end, and know the reason for any difference.
• List every existing loan, lease, finance facility and guarantee in one place.
• Read your balance sheet as a stranger would, and write down the answer to anything that invites a question.

One closing thought, and it is the principle CFO Pal's own board pack is built on: where a figure cannot be derived honestly it is better to say so than to print a nearby number. The only thing worse than a gap in a pack you hand to a lender is a figure in it that turns out to have been a guess.

Related reading

• balance sheet
• working capital
• EBITDA
• management accounts
• management accounts software
• customer concentration: how many customers is too few
• Companies House filing deadlines