Why preparation matters more than ever
The lending environment for SMEs in Australia is shifting. Access to finance has improved in some areas, with more competitive pricing, faster approvals, and a broader range of funding products. At the same time, banks are watching risk signals closely. Non-performing business loans have increased over the past two years, particularly in hospitality, discretionary retail, and construction. Company insolvencies have risen, driven largely by small businesses with fewer than 20 employees.
What does this mean for you? Banks are willing to lend, but they are scrutinising applications and existing facilities with sharper eyes. One in five SMEs reports challenges when looking to obtain finance, with strict lender requirements and difficulty securing a suitable interest rate topping the list.
The businesses that get the best outcomes at bank review are the ones that control the narrative from day one. They present a clear, well-documented financial story before the bank starts asking questions. This article shows you how to do exactly that, whether you are preparing for your annual loan review, a new loan application, or a refinance.
Clean up your profit and loss statement
Your P&L is the first document a bank analyst will review. If it is cluttered with one-off costs, owner-related expenses, or unusual items, the true earning power of your business gets buried. The bank will either miss it or, worse, assume the business is underperforming.
Normalising your P&L means identifying and adjusting for extraneous variables so the bank can see your underlying, repeatable earnings. This is one of the most effective things you can do before any loan review or loan application.
Common items to address include:
- One-off or non-recurring expenses: A legal settlement, a one-time restructuring cost, or storm damage repairs. If it will not happen again, call it out and adjust for it.
- Owner-related costs running through the business: Personal vehicle expenses, above-market salaries to family members, personal travel, or lifestyle costs coded to the business. Banks know these exist. The question is whether you have identified them and can demonstrate the adjusted profit.
- Below-market owner remuneration: If you are paying yourself well below market rate to make the P&L look stronger, a good analyst will spot it. Be honest and show a normalised figure that reflects a fair market salary.
- Non-cash items: Depreciation and amortisation policies can distort earnings. Make sure you can explain your approach clearly.
- Irregular revenue: A large one-off contract or a government grant that inflated a single year’s revenue. Strip it out so the bank can see your baseline.
The practical step: Prepare a separate schedule that sits alongside your financial statements. Show your reported profit on one line, then list each adjustment with a brief explanation, and arrive at your normalised EBITDA (earnings before interest, tax, depreciation, and amortisation). This gives the bank analyst exactly what they need to assess your true debt serviceability. It also shows you understand your own numbers, which builds confidence in you as a borrower.
Demonstrate strong cash flow
Profit on paper is one thing. Cash in the bank is another. Banks want to know that your business generates enough cash to comfortably service existing debt and any new facilities you are seeking.
Before your annual review or refinance application, prepare the following:
- Historical cash flow statements: At minimum, two to three years. Make sure these reconcile clearly to your P&L and balance sheet.
- A 12-month cash flow forecast: This should be realistic, not optimistic. Show your assumptions clearly: revenue growth rates, debtor collection days, creditor payment terms, seasonal patterns, and capital expenditure plans.
- Debt serviceability calculations: Show the bank how your forecast cash flow covers your interest and principal repayments. A common measure is the interest cover ratio (your EBITDA divided by your interest expense). Most banks want to see this at 2.0 times or above for trading businesses, though requirements vary by lender and sector.
Watch for these cash flow red flags that banks will pick up on:
- Debtor days blowing out (your customers are taking longer to pay you).
- Inventory building up without a corresponding increase in sales.
- Increasing reliance on your overdraft facility to fund day-to-day operations.
- Significant gaps between reported profit and actual cash generation.
If any of these exist in your business, address them before the review. If you cannot fix them in time, have a clear explanation and a plan. Banks accept that trading businesses face cash flow pressures. What they do not accept is a borrower who cannot explain why.
Deal with ATO debt before the bank finds it
This is a big one. Outstanding ATO debt is one of the strongest negative signals a bank can see when assessing your business. The Australian Taxation Office’s resumption of enforcement actions on unpaid taxes has been a significant driver of rising small business insolvencies in recent years.
Banks know this. When they review your financials, they will look at your balance sheet for ATO liabilities. They will check your Business Activity Statements. Some lenders run independent ATO portal checks. If you have a tax debt you have not disclosed, it will surface, and it will damage your credibility at exactly the wrong moment.
Here is what to do:
- If you can pay the ATO debt before your review, pay it. This is the cleanest outcome. It removes the issue entirely.
- If you cannot pay it in full, get on a formal payment plan with the ATO before your bank review. A documented payment arrangement shows the bank you are managing the issue proactively.
- Disclose it upfront. If ATO debt exists, include it in your information pack with a clear explanation of how it arose and how you are resolving it. Do not wait for the bank to discover it. That shifts the narrative from “managed issue” to “hidden problem.”
- Get your lodgements up to date. Overdue BAS or tax returns are another red flag. Even if you owe money, having your lodgements current shows the ATO (and the bank) that you are engaged and compliant.
The ATO portal is now integrated into many banks’ assessment processes. Assume the bank will see everything. Prepare accordingly.
Pull your information pack together early
Banks assess risk. Your job is to reduce the perceived risk of lending to your business. A well-prepared information pack does this powerfully.
At minimum, your pack should include:
- Two to three years of financial statements (ideally reviewed or audited).
- Your normalised P&L schedule with clear adjustments and explanations.
- A 12-month cash flow forecast with stated assumptions.
- Aged debtors and creditors reports (current, not three months old).
- A brief business overview: Who you are, what you do, your key customers, your competitive position, and your growth plans. Keep it to one or two pages.
- Details of existing facilities and what you are seeking (new facility amount, purpose, proposed security, and repayment structure).
- ATO integrated client account showing your current position, or a statement confirming nil debt.
- Personal financial statements for directors and guarantors, if applicable.
Present this as a single, organised document. A well-structured information pack tells the bank that you run a well-structured business. First impressions matter.
Start the conversation early
Do not wait until your annual review date arrives. Reach out to your banker (or your broker) four to six weeks before the review is due. Let them know you are preparing your information pack and ask if there is anything specific they need this year.
This does two things. It gives you time to address any issues before they become problems in a formal review. And it signals to the bank that you are a proactive, organised borrower. That reputation compounds over time and gives you a stronger position when negotiating terms, pricing, or new facilities.
If you are also planning a new loan application or refinance, timing matters. Presenting a new funding request alongside a clean annual review is far more effective than submitting a standalone application out of cycle. The bank already has your updated financials, your cash flow story makes sense, and your relationship manager can advocate for you internally with a complete picture.
Choose the right people to support you
You do not have to do this alone. A good accountant will help you normalise your P&L and prepare financial statements that tell the right story. A good debt adviser or broker will help you structure your information pack, identify the right lender for your needs, and negotiate terms on your behalf.
The value of independent advice is particularly important if you are considering a refinance or seeking new facilities from a different lender. Every bank has different credit appetites, sector preferences, and pricing structures. What one bank declines, another may approve enthusiastically. A broker who understands the full market can match your business to the right lender and present your application in the format that lender prefers.
Take control of your next review
Your bank annual review does not have to be something that happens to you. It can be something you drive. Clean up your P&L so the bank sees your true earnings. Show clear, realistic cash flow that demonstrates your ability to service debt. Deal with any ATO debt before it becomes a surprise. Pull your information together early, present it professionally, and start the conversation before the bank comes to you.
The businesses that secure the best lending outcomes, whether at annual review, refinance, or new loan application, are the ones that walk into the room with a clear financial story and the confidence to tell it.
If you want help preparing for your next bank review or exploring your finance options, get in touch with our debt advisory team. A short conversation now could make a significant difference to your outcome.
