What a lender reads in your projections

Projected financial statements submitted with a facility application get read differently from how they get written.

The business writes them looking forward: this is where we are going. The credit team reads them looking backward: does this reconcile with what you have already done, and what happens to it if the year goes badly?

Understanding that gap is most of the work.

What is being tested

Debt service coverage. Cash available to service debt, divided by what the debt costs. Below about 1.25 the proposal is difficult regardless of how good the story is, because there is no headroom for a bad quarter.

Current ratio. Current assets against current liabilities. Working-capital proposals live or die here, and it is the ratio most often flattered by receivables nobody expects to collect.

Debt to equity, after the facility. Not before. The relevant question is what the balance sheet looks like on the day the money lands.

Everything else in the pack exists to support those three numbers.

The assumptions that get tested

A credit note is largely an exercise in taking your growth rate and asking where it came from.

• Projected revenue growth against the last three years actual. A business that grew 8 per cent a year projecting 40 has to explain the difference in one sentence, and "we are expanding" is not that sentence.
• Receivable days held flat while revenue doubles. Almost never true, and it is the single most common way a projection quietly invents cash.
• Margins improving with scale. Sometimes correct. It needs a reason — a specific fixed cost that stops rising, not an assertion.

CMA data is a format, not a document

Credit monitoring arrangement data is the standard set of statements banks use to compare proposals: past performance, current position, projected performance, the working capital assessment and the fund flow behind it.

It is a format. Submitting the same numbers in your own layout does not make them easier to read; it makes the analyst reconstruct them, and analysts who are reconstructing things ask more questions.

Write the assumptions down

The single most useful thing you can do with a projection is put the assumptions next to the numbers rather than three tabs into the spreadsheet.

Growth rate, collection period, payment period, capacity utilisation, the interest rate assumed. Stated plainly, where the person assessing them can find them.

It does two things. It shortens the assessment, because nobody has to guess what you meant. And it forces the conversation the projection exists to have — which of these numbers are we actually confident about.