Preparing for a January Bank Review
If your business has a loan, an overdraft or a credit line, there is a good chance your bank will want to review it early in the new year. A January bank review does not have to feel like an exam. With a tidy pack of numbers, a clear story and a few smart questions, it becomes a chance to strengthen the relationship and even improve your terms.
Key takeaways
- Banks review business facilities to check that the risk still matches the terms, often soon after your year end or the facility anniversary.
- Prepare a short pack: recent accounts, management figures, aged receivables and payables, a cash forecast and any covenant calculations.
- Explain bad news before the bank finds it, with a cause, a fix and a timeline.
- Use the meeting to ask for things too: a higher limit, a lower rate, a review of personal guarantees or different reporting.
Mid-December is the right moment to start. Your bank contact is about to go quiet for the holidays, your books for the year are nearly complete, and January meetings tend to fill up quickly. A few hours of preparation now means you can walk into the review in January with answers rather than apologies.
This guide covers what banks look at, how to build your review pack, how to handle awkward numbers and what to ask for while you have the lender's attention. It is general information, not financial or legal advice. Your loan agreement is the document that counts, so read it carefully and talk to your accountant or a qualified adviser about anything that worries you.
Why banks hold annual reviews
When a bank lends to a business, it makes a judgment about risk at that moment. A year later, the business may be bigger, smaller, more profitable or more stretched. An annual review is how the bank checks whether the facility still makes sense.
Some facilities, such as overdrafts and revolving credit lines, are renewed each year, and the review decides whether they continue, grow or shrink. Term loans usually keep running, but the bank may still review them to check covenants and update its internal risk rating. That rating can affect the pricing you are offered and how much appetite the bank has to lend you more.
What the bank is really trying to learn
- Can you keep paying? Is there enough cash flow to cover interest and repayments comfortably?
- Are you within the rules? Have you met the covenants and reporting duties in your agreement?
- Is anything changing? New owners, big contracts, lost customers, expansion plans or legal issues.
- Is the security still solid? Assets pledged, personal guarantees and their current value.
- Do you understand your own numbers? Owners who can explain their figures clearly inspire more confidence.
Pro tip
Call or email your bank contact before the holidays and ask three things: when the review is due, what they will need from you, and whether anything about your account has caught their eye. The answers tell you exactly where to focus your preparation.
The numbers lenders look at first
Every bank has its own model, but a few measures come up again and again. Calculate them yourself before the meeting so nothing surprises you.
Debt service coverage
The debt service coverage ratio (DSCR) compares the cash your business generates with the loan payments it must make. It is net operating income divided by total debt payments for the same period. A ratio below 1 means the business is not generating enough to cover its debt payments from operations.
Other measures you may be asked about
- Revenue and profit trends: this year against last year, and the direction over recent quarters.
- Gross margin: whether rising costs are squeezing what you keep from each sale.
- Working capital: how quickly customers pay, how much stock you hold and how long you take to pay suppliers.
- Leverage: total debt compared with earnings or equity, depending on how your covenants are written.
- Account conduct: how often you use the overdraft, whether you stay within limits and whether payments bounce.
Common mistake
Assuming the bank only cares about profit. A profitable business that lives at the top of its overdraft every month, or that missed a reporting deadline, can still be flagged as higher risk. Account behavior and compliance with the agreement matter as much as the headline numbers.
Build your review pack step by step
A neat, complete pack sends a strong signal before anyone says a word. Aim to send it a week before the meeting.
- Reread your loan agreement. List every covenant, reporting deadline and condition. Note the exact definitions, because covenant formulas often differ from textbook ones.
- Close the books for recent months. Reconcile bank accounts and get management accounts up to the end of November or December.
- Run your covenant tests. Calculate each covenant using the agreement's definitions and keep your workings.
- Pull aged receivables and payables. Highlight anything overdue and what you are doing about it.
- Prepare a 12-month cash forecast. Show monthly receipts, payments, loan repayments and the expected bank balance.
- Write a one-page summary. Cover how the year went, what changed, your plans and any requests.
- Check your security details. Confirm the assets pledged, insurance on them and any guarantees still in place.
A bank review pack template
Use this as a cover sheet for your pack. List each item, its status and the one message it supports. Amounts are made-up examples.
| Item | Period covered | Key figure (example) | Message for the bank | Status |
|---|---|---|---|---|
| Management accounts | January to November | Revenue $480,000, up on last year | Steady growth with stable margins | Ready |
| Covenant calculation | Last 12 months | DSCR 1.6 against a 1.25 covenant | Comfortable headroom | Ready |
| Aged receivables | As at 30 November | $18,000 over 60 days | Two slow payers, both on payment plans | Needs notes |
| Cash forecast | Next 12 months | Lowest balance $22,000 in March | No need to exceed current limit | Draft |
The "message" column is the secret weapon. It forces you to decide what each document should prove, and it gives you talking points for the meeting.
How to handle weak numbers honestly
Most businesses have something they would rather not discuss: a quiet quarter, a lost client, a covenant that came close to the line. Banks see these situations all the time. What worries them is learning about a problem late, or getting vague answers.
Use the cause, fix, timeline pattern
For each issue, prepare three sentences. What caused it? What have you done about it? When will the numbers show the improvement? A clear, specific explanation turns a red flag into evidence that you manage the business well.
Example
Imagine Tomas, who owns a small commercial cleaning company. A large client left in September, so his fourth quarter revenue fell and his DSCR slipped close to the covenant level. In his summary he explains the cause (one client consolidated suppliers), the fix (two new contracts signed in November and payroll hours adjusted) and the timeline (coverage expected back above the covenant level by March, with the forecast attached). His bank contact thanks him for flagging it early, and the overdraft is renewed at the same limit. (This is a hypothetical example.)
If you think you will breach a covenant
Speak to the bank before the breach happens, not after. Many lenders can offer a waiver or a temporary reset if you raise it early and show a credible plan. Read what your agreement says about breaches and remedies, and get advice from your accountant or a solicitor or attorney before you sign any amendment.
Common mistake
Polishing the forecast until it looks perfect. A forecast that shows every month improving with no risks feels unrealistic to an experienced lender. Include a cautious case, name the assumptions and show what you would do if sales came in lower.
What to ask for while you have their attention
A review is a two-way conversation. If your business is in good shape, this is your best chance to improve terms.
- A higher or more flexible limit if your forecast shows seasonal cash dips.
- Better pricing if your risk has fallen since the facility was set up. Ask what would need to change for a lower rate.
- A review of personal guarantees. A personal guarantee makes you personally liable if the business cannot repay. If the business has grown, ask whether the guarantee can be reduced, capped or released.
- Simpler reporting, such as quarterly instead of monthly figures, if your track record is good.
- Clarity on fees, including renewal, arrangement and non-utilization charges, so you can compare with other lenders.
Pro tip
Know your alternatives before the meeting. A quick conversation with another lender or a broker gives you a realistic sense of what is available, and you can negotiate more calmly when you are not dependent on one answer.
After the meeting
Send a short email the same day summarizing what was agreed, any documents still owed and the dates for next steps. Put covenant test dates and reporting deadlines in your calendar for the whole year. If the bank offers new terms, read the facility letter carefully before signing, and compare it line by line with the old one.
Your January bank review checklist
- Ask your bank contact for the review date and document list
- Reread the loan agreement and list every covenant and deadline
- Close and reconcile the books for recent months
- Calculate DSCR and other covenants using the agreement's definitions
- Prepare aged receivables, aged payables and a 12-month cash forecast
- Write a one-page summary with cause, fix and timeline for any weak spots
- Decide what you will ask for: limit, pricing, guarantees or reporting
- Send the pack a week early and confirm the outcome in writing afterward
Frequently asked questions
Can a bank reduce or cancel my overdraft at a review?
Often, yes. Many overdrafts and credit lines are renewable or repayable on demand, so the bank can change them at review. Check your facility letter for the exact terms and notice periods, and prepare early so you have time to arrange alternatives if needed.
What if my year-end accounts are not ready in January?
That is common. Send up-to-date management accounts and tell the bank when the final accounts will be ready. Lenders mostly want current, reliable figures and a date they can count on.
Should my accountant come to the meeting?
It can help if your numbers are complex or you expect difficult questions, but you should lead the conversation. Banks lend to owners who understand their own business, so practice explaining your figures in plain language.
Related reading
The bottom line
A January bank review goes best when you treat it as a planned conversation, not an inspection. Know your covenants, calculate your own numbers, send a clean pack early and explain any weak spots with a cause, a fix and a timeline.
Block out an afternoon before the holidays to gather the documents, then use the meeting to ask for what your business needs. A prepared owner usually leaves with a stronger relationship and, sometimes, better terms.
