Bank financing file: present your SME the way the banker analyses it

What does a bank financing file contain?

A bank financing file brings together what the credit committee needs to decide: who you are, what you are financing, how the company will repay, and what protects the bank if the central scenario does not materialise. For a Belgian SME, it comprises seven documents in practice.

• Credit memo: presentation of the company, its market and its managers, key figures, purpose and structure of the request.
• Financing plan: the needs (investment, working capital requirement, costs) set against the resources (equity, requested credit, other financing).
• Annual accounts for the last three financial years, as filed with the National Bank, and a recent interim statement.
• Three- to five-year forecast: income statement, balance sheet and cash plan consistent with each other, monthly for the first year.
• Documented assumptions and sensitivities: what each figure rests on, and what happens if revenue disappoints.
• Calculated ratios: repayment capacity (DSCR), solvency, leverage, interest coverage.
• Proposed collateral and existing commitments: current loans, leases, security already granted.

What your banker really assesses

Before the rate and the guarantees, the banker assesses one thing: your company's capacity to repay. They measure it with precise ratios, foremost among them the DSCR (debt service coverage ratio), which compares available cash flows to debt service.

• Repayment capacity: do cash flows cover the instalments, and with what margin (DSCR)?
• Financial structure: level of equity, existing debt, balance sheet equilibrium.
• Quality of information: up-to-date accounts, forecast consistent with the track record, justified assumptions.
• Guarantees and collateral: what secures the bank if the central scenario does not materialise.
• Coherence of the project: does the financed investment generate the flows that repay the credit?

The ratios the banker looks at

The bank will calculate these ratios anyway: you are better off presenting them yourself, with their explanation. They are read on the historical figures and on the forecast, after the new loan.

• DSCR (debt service coverage ratio): available cash flow divided by the year's debt service (interest and principal repayments). Above 1, the business covers its instalments; banks expect a margin, often a DSCR of at least 1.2 to 1.3.
• Solvency: equity divided by total assets. It measures the share of the company financed by its shareholders, hence the cushion that absorbs losses before the creditors.
• Net financial debt to EBITDA: the number of years of operating cash it would take to repay the debt, net of cash.
• Interest coverage: operating profit divided by interest expense. It shows the safety margin if rates rise or profit falls.
• Current ratio: current assets divided by current liabilities. Below 1, the company relies on its credit lines to meet its short-term obligations.

A worked example: DSCR before and after the loan

Take a fictitious SME with EBITDA of €400k. After €60k of tax and €40k of replacement capital expenditure, it has €300k of available cash flow. Its current loans cost it €150k a year: its DSCR is 2.0, comfortable.

It requests €600k over 5 years at 4% for a new production line. The annual instalment is about €135k: debt service rises to €285k and the DSCR drops to 1.05. The business still covers its instalments, but with no margin: at the slightest shortfall, cash flow is no longer enough.

The file must answer before the banker asks. Extending the term to 7 years brings the instalment down to about €100k and the DSCR to 1.2; an equity contribution reduces the amount borrowed; the forecast shows what the new line adds to cash flow from the second year. The figures are illustrative; the reasoning is the credit committee's.

Preparing your file: steps and timing

A file is prepared before the first meeting, not after the first refusal. Allow a few weeks between the diagnostic and the submission, more if the forecast has to be built: it is better to start before you need the funds.

• Initial diagnostic: read the accounts the way the bank will, and spot the weaknesses to address or explain.
• Sizing the request: amount, term and type of credit suited to what is financed (investment, working capital requirement).
• Forecast and sensitivities: build the three statements, test adverse scenarios, plan room for manoeuvre.
• Credit memo and ratios: assemble the file, calculate and comment on the ratios before the bank does.
• Meeting preparation: anticipate the committee's questions, gather the appendices, know what is negotiable (collateral, term, conditions).

The classic mistakes that cost a credit

The same mistakes recur in rejected files: a forecast disconnected from the track record, working capital forgotten in the financing plan, a poorly calibrated request or a single scenario presented as a certainty.

• Optimistic forecast with no link to past performance: credibility immediately dented.
• Working capital missing from the financing plan: financed growth consumes cash the file ignores.
• Poorly calibrated amount: too tight, you will have to come back; too large, it worries.
• Single scenario: without sensitivities or a plan B, the committee makes its own assumptions, rarely in your favour.
• Incomplete or late information: every back-and-forth delays the decision and erodes trust.

Our support

Sagora intervenes upstream of your request: diagnosis of the financial situation, construction of the forecast, drafting of the credit memo and preparation for the bank's questions. You remain your banker's counterpart; we give you a file that holds.

To objectify the starting point, you can request a first free analysis of your company based on its public accounts. It often reveals the points the bank will raise, while there is still time to address them.