Financial Strategy
Bank limit renewal and covenant pressure
“Our bank limit is up for renewal and we are not sure the numbers will pass.”What owners tell us
The situation
Signs you are facing this
- A renewal date is approaching and there is no current financial package ready
- The bank asks for projections, stock or receivable statements that take weeks to produce
- The overdraft or working capital limit has been fully drawn for months
- Ratios the bank watches have moved and no one tracked them between reviews
The situation
Bank limit renewal and covenant pressure
Driver 1
Reporting built for tax, not for lenders
Statements prepared for filing rarely answer the questions a credit committee asks.
Driver 2
Covenants nobody tracks
Conditions in the loan agreement are read once, at signing, and not monitored.
Driver 3
The wrong debt for the job
Short-term lines funding long-term assets put pressure on every renewal.
- 1
Diagnose
Test the numbers as the bank will
Recompute the key ratios, receivable and stock positions, and the conduct of the account.
- 2
Design
Close the gaps before submission
Correct classification, reconcile balances and explain unusual movements in writing.
- 3
Embed
Prepare the lender pack
Statements, projections, sensitivity and a clear use of funds, in the order a credit review reads them.
- A lender-ready financial package
- Projections with sensitivity cases
- Covenant and ratio tracker
- Submission narrative and use of funds
Start this week
- List every facility, limit, expiry and covenant in one register
- Reconcile bank statements and ledgers monthly
- Refresh projections before each review
- Keep a current receivable and stock statement
Common questions
What does a bank look at when renewing a working capital limit?
Typically recent financial statements, cash-flow and sales projections, receivable and stock positions, security cover and how the account has been run. Requirements differ by bank and facility.
What is a loan covenant?
A condition in the loan agreement, often a financial ratio, that the borrower must keep within agreed limits. A breach can lead to fees, repricing or a review of the facility.
Related situations
- “We are profitable, but cash is always tight.”Profitable on paper, short of cash in the bank
- “Our year has a few strong months and a long quiet stretch.”Seasonal business, steady obligations
- “We are raising money and our numbers will not survive an investor's questions.”Raising money, but the numbers are not investor-ready