The financial plan for your bank loan

What the bank checks in your financial plan

A loan officer reads your financial plan with four questions in mind: Does the project make money (profitability)? Is the cash flow enough for interest and repayment (debt service capacity)? How much equity stands behind it (substance)? And are the figures plausible and easy to follow? The plan only convinces if all four are answered clearly.

For this the bank expects a forecast income statement, a month-by-month cash flow forecast, a forecast balance sheet, a repayment schedule per loan and the key figures. How to build this plan cleanly is shown step by step in the guide build a financial plan and, for the numbers section of the business plan, the business plan financials. This page, by contrast, explains how the bank assesses it.

Debt service capacity: the decisive question

The most important criterion in any loan review is debt service capacity: can you carry the debt service, that is interest and repayment, out of the running business on a lasting basis? The bank reads this from your liquidity and cash flow planning.

It is measured with the debt service coverage ratio, the DSCR: the cash flow before debt service divided by the debt service. As a rule of thumb the bank wants to see a value well above 1.0, usually at least 1.2. A value of 1.2 means that after interest and repayment there is still around a fifth of headroom left. How to calculate it and which threshold your bank expects is set out in the guide calculate the DSCR.

If the first year gets tight, a repayment-free start-up period or a longer term helps: both lower the debt service per year and lift the DSCR. What matters is that liquidity never turns negative in any month.

Rating and creditworthiness: how the bank grades you

Before the bank decides on the loan, it assigns an internal rating, a creditworthiness grade. It summarises how likely you are to repay the loan and thereby decides two things: whether you get the loan and at what interest rate. A better rating usually means more favourable terms.

The rating draws above all on:

Equity ratio and level of debt as a measure of substance. More equity means less risk. How to calculate the ratio is set out in the guide calculate the equity ratio.
Earning power and margins from the income statement and management accounts, in other words whether the business earns money steadily.
History: the last annual accounts and the current management accounts show whether the forecast figures connect to a real track record.
Industry and project, because some industries are seen as riskier.
Collateral and the borrower's personal creditworthiness. The credit bureau (Schufa) report plays an important role here: negative entries can sink the loan even with good company figures.
Existing banking relationship and account conduct: if you are already a customer, the bank sees your account activity first-hand, that is regular inflows, overdrafts or bounced direct debits. A cleanly run account looks positive, while irregularities weigh on the rating.

A clean, traceable financial plan with robust assumptions improves the rating directly, because it removes uncertainty from the assessment.

How the bank assesses internally

Your contact at the branch generally does not decide a larger loan alone. For supervisory reasons, German banks keep two areas organisationally separate, the so-called separation of functions under the Minimum Requirements for Risk Management (MaRisk):

Front office (Markt): your relationship manager. He looks after you, prepares the application and gives a vote for or against the loan. He is closer to you but also assesses the risk.
Back office (Marktfolge): the credit risk unit in the background, without customer contact. It reviews your figures independently, produces or confirms the rating and gives a second, self-standing vote.

Smaller loans are often decided by your adviser alone within fixed authority limits. Only above certain amounts does the second, independent vote from the back office come in (four-eyes principle).

Larger exposures additionally trigger the disclosure obligation under section 18 of the German Banking Act (KWG): above 750,000 euros the bank must have your economic circumstances disclosed to it, though many institutions ask for the documents considerably earlier.

Why the bank reads so cautiously comes down to an imbalance: if a committed loan defaults, it loses the full amount in the worst case. On a well-performing loan, by contrast, it only earns the thin interest margin. A single default therefore costs as much as the margin from many solid loans. That is why the bank would rather review too strictly than too loosely, and rewards plans that still hold up in the weaker case. This is exactly what questions about a drop in revenue are aiming at: not the success case, but the default case.

What this means for you: your plan has to convince someone you will never meet. The back office reads soberly what you submitted, without your conversation and without your enthusiasm. So in the end it is not the personal impression that decides, but whether the figures are internally coherent and verifiable.

The plan the bank reads all of this from

Planvik generates the complete Excel file with income statement, cash flow statement, forecast balance sheet, repayment schedules and the key figures, linked throughout and cleanly formatted. Exactly the format the loan review expects, in about 15 minutes.

Create your financial plan

Capital requirement and collateral

The bank wants to know exactly what you need the money for and where it comes from in total. These two sides have to match:

Use of funds: investments, start-up costs, the buildup of working capital and a liquidity reserve.
Source of funds: equity, promotional loans and the bank loan. The difference gives you the actual loan requirement.

Almost always the bank also requires collateral. Common forms are deposits and securities, real estate via a land charge, machinery or vehicles via a chattel mortgage, and personal guarantees from the shareholders.

If you lack collateral, there are two routes: a guarantee bank of your federal state guarantees a large part of the loan if the project is viable. And many KfW programmes include a liability exemption that takes part of the default risk off the house bank, so it can commit more easily.

The loan interview: convince by being prepared

In the interview it is not only the plan that counts, but whether you present it confidently. It is usually short, so prepare a concise summary and know your figures by heart. Expect follow-up questions such as: Why this revenue growth? What happens with twenty percent less revenue? How is the repayment covered?

These mistakes most often cost the commitment:

Revenue forecast without evidence. Growth must be justifiable with market data or an order backlog.
Staffing set too low. Strong growth with an unchanged team looks unrealistic.
Working capital ignored. A buildup of receivables and inventory ties up money that is then missing.
Taxes applied incorrectly. Corporations pay corporate and trade tax out of the company; for sole proprietorships and partnerships the profit is taxed at the owner level via income tax. Depending on the legal form this belongs in the plan, otherwise the result is set too high.
Balance sheet does not add up. If assets and liabilities do not match, that is a clear warning sign: it costs trust in the whole plan, because it points to workmanship errors.

Savings bank, cooperative bank, KfW: are there differences?

At the core, no. All German institutions assess along the same scheme. Differences only exist in the additional documents required:

Savings bank, cooperative bank, house bank: the standard financial plan is usually enough, plus the last two annual accounts and the management accounts.
KfW programmes run through your house bank (the house bank principle); in addition the KfW application form and a proof of use.
Guarantee banks: a more detailed business plan, because they share the risk.

Which documents the bank expects overall varies only by lender and programme. The financial plan itself can be identical in every case.

Frequently asked questions

Which documents does the bank need in addition to the financial plan?

Typically the last two to three annual accounts, the current management accounts, a personal financial statement and, depending on the project, a business plan. For KfW-financed loans the KfW application form is added.

How many years must the financial plan cover?

For investment loans usually three to five years of forecast plus two to three years of history, and often five years for KfW programmes. The cash flow forecast is usually month by month in the first year.

How much equity does the bank expect?

There is no fixed ratio, but many lenders expect at least 15 to 20 percent equity in the project. More equity improves the rating and therefore the terms.

Can I get a loan without collateral?

Often yes, through a guarantee bank or a KfW liability exemption that takes on part of the default risk. What remains decisive is that the project is viable in the financial plan.

Is a self-built Excel spreadsheet enough?

Technically yes, in practice often not. Banks expect a consistent structure with linked sheets, clean formatting and traceable formulas. That is exactly the format Planvik delivers, without any Excel tinkering.

What does a bank-ready financial plan cost?

Tax advisors and consultants usually charge between 1,500 and 5,000 euros depending on scope. A tool like Planvik produces the same output for around 250 euros.

How quickly does Planvik produce the financial plan?

From guided inputs the complete plan takes about 15 minutes, as a bank-ready Excel file with income statement, cash flow statement, balance sheet, repayment schedules and key figures.