How lenders read your company accounts — Guides

2 min read

Cash, not just profitCan it service the debt?

Balance-sheet strengthCushion for bad times

Red flagsWhat worries a lender

They start with the ability to repay

Every lender is answering one question: can this company comfortably repay us? So they go past headline profit to cash generation — the actual money the business throws off after everything real is paid. A profit propped up by unpaid invoices or one-off gains doesn't reassure them; steady, cash-backed profit does. See profit vs cash flow for why the two differ.

Cover ratios do the talking

Lenders translate your figures into ratios. Debt service cover tests whether cash comfortably exceeds the new repayments; interest cover checks the same for interest; gearing shows how much debt you already carry. Strong ratios open the door; weak ones raise the price or close it. Knowing yours before you apply lets you ask for the right amount.

The balance sheet as a cushion

Beyond the profit and loss, lenders read the balance sheet for resilience: positive net assets, real reserves, sensible working capital, and not too much value tied up in intangibles. A solid balance sheet says the company can absorb a bad patch and still repay — which is exactly the reassurance they want.

The red flags they watch for

Certain patterns make a lender pause: falling margins, a stretched current ratio, a large or growing overdrawn director's loan account, late filings, or a going-concern note. None is automatically fatal, but each needs an explanation. Get ahead of them — a clear story beats a lender's worst assumption. See filing obligations.

Present accounts that make the case

You can help the lender say yes: file on time, keep the loan account tidy, use up-to-date management accounts to show current trading, and be ready to explain any wobble. Credicorp assesses the company, not your personal wealth, and takes no personal guarantee. Run your own numbers first with the affordability calculator.

Frequently asked questions

What do lenders look for in company accounts?

Above all, the ability to repay: real cash generation, comfortable cover ratios, a sound balance sheet with positive net assets, and no unexplained red flags. Headline profit matters less than whether the business reliably produces the cash to service the debt.

Do lenders care about my director's loan account?

Yes — a large or growing overdrawn director's loan account is a red flag, because it suggests cash is being extracted rather than retained. Keeping the loan account tidy before you apply presents a cleaner picture.

How can I present my accounts more favourably?

File on time, keep the loan account clean, provide recent management accounts to show current trading, and prepare short explanations for any dips. Lenders reward transparency and a clear repayment story; they penalise surprises and gaps.