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Lending to companies

Obtaining financing from the bank starts with the bank's understanding of your company. When the bank sees your business’s potential, it can carry out a correct credit assessment that will support a loan.

The Confederation of Danish Industry and Finance Denmark have compiled a check list with 10 points, which companies can use as a starting point for i.e. drafting company’s finances with the board of directors, bank and/or accountant.

The 10 points focus on the areas that banks primarily look at when carrying out a credit assessment of your company. The check list gives you the chance to be proactive and ensure that you approach your accountant or bank before the bank approaches you.

However, the check list can also be used to give a company and its board of directors an overview of the company’s finances, liquidity and need for financing in the short and long term. In this way, it can inspire the way in which your company should act in a fluctuating market.

Borrowing from the bank

 

The 10 points

  • Does the company have the right products and services on the shelf?
  • Are there any new business opportunities?
  • Can increased financing costs be added to prices?
  • Do you know what the contribution margin is for individual goods/services? And do you know what the company’s profit ratio and contribution ratio are in relation to competitors?
  • Is the company present on the right export markets?
  • Is the company’s capacity adapted to developments in demand?
  • Can administration or other activities be outsourced?
  • Can processes be made automatic or digitised?
  • Can costs be reduced without affecting the development of new products?
  • Do you have an overview of the competences that are needed in your management team, board of directors and amongst your employees?
  • When did management last carry out a SWOT analysis of the company?
  • Do you have a plan for how to consistently ensure that employees have the right competences and if applicable, continuously receive further training?
  • Are you in a network, where you can receive professional and managerial sparring, mentoring and/or the possibility to discuss the general financial situation within your sector?
  • Do you need to strengthen management through i.e. further training or hiring middle managers?
  • Does the board of directors have the right competences for the current situation?
  • Is the board of directors regularly informed of the company’s financial circumstances, liquidity and need for financing?
  • Is the board of directors well-functioning and proactive?
  • If the company does not have a professional board of directors, do you have professional sparring partners in another way?
  • Has a procedure for continuous reporting to management been built up?
  • Do you have easy access to continuous information about variations in turnover, costs, developments in credit and debtor days, key figures, stock, time spent etc.?
  • Do you have an overview of where and when payments occur in the short term (the next few weeks) and in the long term (the coming months)?
  • Is there a procedure in place that ensures automatic dispatch of invoices and reminders?
  • Can costs be reduced through better supplier agreements that could, for example, take seasonal fluctuations and delivery frequency into account?
  • Is it possible to reduce the number of credit days either by looking at the company’s own administrative routines or by renegotiating agreements with customers?
  • Do you have an overview of how much money the company has tied up in raw goods, middle-of-the-road goods and inventory?
  • Can the company minimise stock i.e. by selling semi-manufactured or unsaleable goods at a discount?
  • Do you have the right balance between equity and borrowed capital?
  • Are there any alternative options instead of ordinary bank financing? For example, can you reduce the need for financing by using leasing and/or factoring instead of ordinary loans?
  • Have you considered bringing in external investors?
  • Have you investigated options such as floating chargse, Danish growth collateral (vækstkaution) or export credit schemes?
  • Is there a procedure in place that ensures that new and old customers are continually subject to credit assessments?
  • Does the company continually follow developments in the price of raw goods, interest rates and exchange rates, and is it worthwhile for the company to identify the exchange rate risk?
  • Is the supplier’s performance continually evaluated?
  • Does the company have a large risk exposure amongst a few large customers or branches?
  • Does the company have a good dialogue with a bank advisor – is it a good match?
  • Is there a continuous flow of information to the bank – even when developments are negative?
  • Does the company make use of different services that accountants can provide in addition to auditing accounts? Do you, for example, use an account in connection with liquidity management?
  • Can financial management be outsourced to an accountant or can the company “rent” an accounting manager?
  • Does the company use the public trade and industry development system, including regional centres?
  • How do the company’s opportunities look in the short, medium and long term?
  • How vulnerable/susceptible is the company’s budgets and plans to fluctuations?
  • What is the worst case scenario? In this case, do you have a plan B?
  • Is the company aware of the free advice service “early warning”, which is offered to smaller companies that will be in or are already in a financial tight spot?
  • Is the company facing an ownership transfer or change and are you and the potential new owner sufficiently equipped for the process? Do you have an exit strategy that takes care of ownership and management changes?

Next steps

If there are one or more of these points that you are uncertain about, it might be a good idea to look at the area together with an account or another private adviser and build up procedures, which are continually reported to management and the board of directors.

At the same time, you should keep your bank updated on both positive and negative news. There should be equal focus on future elements (new customers, suppliers, orders, competitors etc.) and past elements (accounts, keeping budgets etc.) so that the bank always knows the company’s development and options.

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Finance Denmark is a business association for banks, mortgage institutions, asset management, securities trading and investment funds in Denmark. Our members are mortgage institutions, banks, savings banks, cooperative savings banks, Danish branches of foreign banks, asset managers, Danish securities dealers and investment funds.

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