Your accountant reads your financials to minimise tax. A lender's credit analyst reads them to assess repayment risk. These are completely different objectives. Understanding that gap is the first step to building a submission that survives first read.
Your tax return is written to minimise tax. A lender's credit analyst reads it to assess risk and repayment capacity. These are different objectives and the gap between them creates some of the most common problems in commercial finance submissions. Understanding this gap is the first step to addressing it.
Growing, flat, or declining? A declining trend is a red flag that needs explanation before the analyst asks. A flat trend in a growing market may also attract scrutiny. The narrative around the trend matters as much as the number.
If gross margin is compressing year on year, that signals input cost pressure or pricing power erosion. A credit analyst will want to understand why and whether the trend will continue through the proposed loan term.
Net profit after tax is a poor proxy for cash generation. Analysts work from EBITDA to understand the actual cash the business generates before financial engineering and tax minimisation are applied.
If the director draws $350,000 from a business with $1.2 million in revenue, an analyst will ask whether a replacement manager could be hired for less, and whether the remaining profit is genuine business performance or director remuneration in disguise.
A year with unusually high revenue due to a one-off contract, asset sale, or government grant will be adjusted out. If you are relying on that year for serviceability, you need either a narrative that supports its recurrence or a lender who uses a multi-year average.
A balance sheet showing more liabilities than assets triggers concern unless explained by above-market dividend payments, related-party loans, or an asset-light operating structure. Context and narrative matter enormously. An unexplained negative equity position will trigger committee escalation.
Management fees, intercompany loans, related-party rent arrangements are legitimate but they require explanation. Unexplained related-party flows make an analyst question whether the reported profitability reflects genuine business performance.
A significant ATO debt, even in an active payment plan, reduces net equity and is a direct charge on future cash flow. It needs to be disclosed, quantified, and addressed proactively. Analysts who discover it mid-assessment do not view the omission favourably.
Before submitting to any lender, Krishna builds a credit assessment in the same format an institutional analyst uses, because that is what he did for 20 years. This process identifies every red flag in your financials and addresses each one with narrative, add-backs, or lender selection before the analyst gets to ask. It is the difference between a clean first read and a round of information requests that adds weeks to the timeline.
Get a Free Financial Review →Most commercial lenders require a minimum of two years of financial statements. Some lenders for asset finance will accept one year plus interim accounts. Business acquisition finance typically requires two to three years of the target business's financials as well as the acquirer's. The required period depends on the lender, facility type, and complexity of the borrowing structure.
Yes. If the most recent financial year ended more than six months ago and the tax return is not yet lodged, most lenders require current interim accounts, typically a profit and loss and balance sheet produced by your accountant. The more recent your financial data, the more accurately a lender can assess your current trading position.
This is one of the most common frustrations in commercial lending. Accounting profit and serviceability are calculated differently. Your accountant works from taxable income. A lender works from free cash flow after existing debt service and a coverage buffer. Depreciation add-backs, director salary benchmarking, and existing liability treatment all affect the serviceability calculation in ways that tax-based profit does not capture.
Krishna will review your last two years of financials through a credit analyst lens at no cost and no obligation, and give you a clear picture of how a lender would assess your position before you submit anything formally.
General Advice Warning: Information in this guide is general in nature and does not constitute financial or credit advice.