The bank wants accounts for the loan application – what should you send?

The bank is mainly trying to answer one question: can the business afford the interest and repayments as agreed? The accounts are only part of it. The bank will normally also want to understand what the money is for and how the finances are expected to develop.

Why does the bank need the accounts?

The Financial Contracts Act requires the bank to make a thorough assessment of the customer's creditworthiness before entering into a credit agreement or materially increasing existing credit. The regulations also require the information the assessment rests on to be verified properly, and say the bank should not enter into the agreement if it lacks sufficient documentation. Even so, banks do not all ask for exactly the same pack of documents.

What does the bank usually ask for?

It varies with the bank, the amount, the business and what is being financed. DNB states that for an ordinary business loan application it normally asks for, among other things, a description of the business, its owners, customers and competitors, the purpose of the financing, the most recent profit and loss account and balance sheet, the profit and loss account year to date, a budget for the current and the coming year, and information about the security offered. Nordea similarly states that it may ask for accounts, an operating budget, a balance sheet budget, a cash flow budget and an overview of equity. The bank can ask for more where the case calls for it: customer and supplier ledgers, an overview of existing loans, repayment schedules, lease agreements, the order book, or documentation of assets to be pledged. Ask the bank what it actually needs before producing a large pack of documents.

Why does the bank ask for the result year to date?

If the latest annual accounts are to 31 December but the loan application goes in in September, a lot can have happened since the year end. An updated profit and loss account and balance sheet can show whether sales have risen or fallen, whether margins have shifted, whether customers are paying later, whether inventory has grown, whether debt has increased, and whether the company has built up or used up liquidity. The bank will usually compare those figures with the annual accounts and the budget.

Why does the budget matter so much?

Historical results show what the business has done. A budget shows what management believes will happen next. Nordea highlights the cash flow budget in particular, because it helps show whether the business is expected to have money available when the interest and repayments actually fall due. A profit budget can show a good annual surplus while the business runs into cash problems along the way – because customers pay late, inventory builds up, VAT and tax fall due before the customer payments arrive, or investments are paid for before the income comes in. A good budget rests on assumptions that can be explained, not simply on a desired outcome.

Which key figures does the bank look at?

There is no single Norwegian standard and no statutory threshold. Banks use their own credit models, but will typically try to understand the ability to service the debt, the profitability of ordinary operations, liquidity, working capital, total debt compared with earnings and equity, solvency, and how seasonal variations play out. The bank may use ratios such as interest cover, the equity ratio and liquidity ratios, but there are no universal thresholds that automatically decide whether a loan is granted.

Does the business have to provide security?

Not under any general statutory rule. But the bank can make security a condition of the loan – a mortgage over property, a charge over operating assets, inventory, trade receivables or financial assets, or a guarantee. What security is required depends on the bank, the product, the amount and the risk. Nordea states, for example, that its ordinary repayment loans require security over real property. That is the bank's credit policy, not a general requirement of Norwegian law.

What if the accounts are not up to date?

Do not send figures you know are misleading just to meet the bank's deadline. Contact the bank first and explain how far the accounts have got. A practical solution might be to ask for a few extra days to finish the reconciliation, to prioritise the bookkeeping and reconciliation of the most important balance sheet items, to send the last quality-assured period, or to send interim accounts clearly marked as provisional and unreconciled if the bank accepts that. What matters is that the bank knows what quality the figures actually have. A provisional extract should not be presented as finished, reconciled accounts.

The board also has to assess the loan itself

It is not only the bank that has to assess the risk. A limited company must at all times have equity and liquidity that are adequate for the risk and scope of its business. The board has to keep itself informed about the company's financial position and, to the necessary extent, set plans and budgets. A new loan can strengthen liquidity, but it also increases fixed interest and repayments. The board should therefore consider how the financing affects the company's finances – not only whether the bank is willing to say yes.

What an accountant can and cannot do

An accountant can bring the bookkeeping up to date, reconcile the bank, customers, suppliers and balance sheet items, prepare interim accounts, pull out the ledgers, draw up an overview of debt and inter-company balances, help management with profit and cash flow budgets, and organise the documentation the bank has asked for. But the accountant does not guarantee the budget and does not decide the loan application. A budget rests on management's expectations and assumptions. Equally, interim accounts prepared by an accountant are not the same as an auditor's report or an independent auditor's assurance.

This is general guidance, not advice on your specific case. Deadlines, rates and amounts change – always check the current rules, or get in touch with us.

Is it urgent?

We can work out what actually has to be done, what documentation exists and how quickly it can be sorted. You can also reach us in the evenings and at weekends.

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