Banks Lend to Companies That Don't Need the Money

A founder called me in March looking for a $500K revolving credit line. Revenue was $9M, growing 35% year-over-year, profitable for three consecutive quarters. By any equity story measure, a strong business.

His banker asked for two years of reviewed financial statements. He had QuickBooks exports and tax returns that didn't reconcile to his management statements. Two prior years had significant expense reclassifications that were never cleaned up. The banker couldn't underwrite what was in front of him.

They eventually got a $150K line. It was too small to solve the problem.

What banks actually underwrite

Banks underwrite repayment capacity, not growth potential. Equity investors buy a piece of your future. Banks need to get paid back from your existing operations.

The primary metric is debt service coverage ratio. Most commercial banks want 1.25x, meaning for every dollar of annual debt service, you need $1.25 of operating cash flow. That's not just EBITDA. It's operating cash flow after adjustments your bank will make: adding back owner distributions, removing one-time items, sometimes adjusting compensation for below-market or above-market pay.

Clean, consistent financials matter because the bank is running a pattern match over your history. Two or three years of statements where revenue, expenses, and cash flows are classified consistently tells a coherent story. A year with large reclassifications in the middle of the history, or statements that don't reconcile to the tax returns, creates questions that slow everything down.

You can't fix this in the month before you need the line. The quality of your financial reporting two years ago matters now.

The bank isn't evaluating this quarter. They're evaluating the quality of financial management over the past two years.

Building the relationship before you need it

Most founders call a banker when cash is tight. That's the moment when banks are least likely to move quickly.

A company that shows up with clean financials and a brief business update every 12 months is in a completely different position. The banker knows the business. Returns calls. Has already run it past credit informally. When a real request comes in, it doesn't start from zero.

Find a commercial banker at a community or regional bank serving companies in the $5M-$20M range. Large national banks don't give meaningful attention to this segment. A regional bank where you're a notable commercial customer will.

Set a meeting. Bring last fiscal year's P&L and balance sheet. Don't ask for anything. Ask what they'd want to see in 18 months to underwrite a $500K credit facility.

That answer tells you exactly what your financial reporting needs to look like for the next two years. Most finance conversations cost more and teach you less.