Introduction
It is Not Just About Cash Flow: How Banks Really Assess Your Business
By Hindol Datta/ July 10, 2025
Part I: The Hidden Anatomy of a Credit Committee
After more than three decades as an operational CFO providing CFO Services and guiding companies through CFO accounting services, I have seen how banks and venture capitalists can examine the same set of numbers and reach entirely different conclusions. Venture capitalists see optionality, markets, and upside potential. Banks, however, focus on how banks evaluate loan requests, looking closely at repayment risk, concentration, and the potential for unexpected events. They are in the business of protecting against asymmetrical downside. This difference explains why founders often walk out of meetings frustrated.
I have sat across from lenders many times, including when I secured a $35 million facility from Bank of America to support Adteractive’s explosive growth from $9 million in 2003 to $118 million in 2004 and $185 million in 2005. The loan was not won by dazzling them with growth slides. It was earned by walking them through predictable revenue mechanics, cash cycle discipline, and a clear repayment roadmap. In other words, we spoke their language.
The first thing a credit committee looks at is not cash flow in the abstract, but the durability and quality of that cash flow. I recall presenting a forecast that looked healthy until we segmented receivables and discovered that over 60 percent came from just two enterprise customers. That concentration risk was flagged instantly. We had to demonstrate diversification efforts to regain credibility. Banks want to see that no single customer can destabilize liquidity.
Revenue quality matters as much as revenue size. They want to know: is it recurring or project-based? Are the contracts enforceable or discretionary? Are the payment terms tight or elastic? When we began building ARR components into our SaaS business, our lender not only improved our credit terms but also extended maturities. Predictability was rewarded.
Collateral plays a bigger role than many founders admit. Banks look at receivables, inventory, and equipment, but they haircut aggressively. A $5 million AR balance might only count as $3 million in the borrowing base. To prepare for this, I built detailed collateral schedules updated quarterly. Those schedules gave lenders confidence that we were not just tracking assets but managing them proactively.
Covenants, too, are not simply constraints. They are signals of fragility. I have treated them as early warning systems. In one situation, our DSCR dipped close to the threshold. Because we flagged it early, the bank allowed us to adjust for extraordinary items. We avoided default and strengthened trust.
In all of this, I return to the lesson that I internalized years ago: banks do not just underwrite financial statements; they underwrite behavior. They are evaluating whether the CFO and the leadership team are predictable, transparent, and disciplined.
Part II: Bridging Language and Building Strategic Credit Narratives
Once you understand how banks think, the job becomes one of translation. It is not about replacing ambition with conservatism. It is about presenting ambition with structure and downside planning.
That means showing revenue as a stack of recurring versus transactional, while highlighting customer tenures and churn data. It means building a three-year forecast with base, downside, and recovery scenarios. When I shared a single-page “risk bridge” that mapped how we would respond to revenue shocks, it saved more than one tough conversation with lenders.
It also means linking operating drivers to financial outcomes. If AR days stretch by ten, how does liquidity shift? If churn falls by one point, how does EBITDA respond? These mechanics
show control. They show that leadership is not only modeling the future but also preparing for volatility.
When I mentor younger CFOs, I emphasize the importance of practicing your credit narrative. Do not wait until the lender diligence to align your team. I rehearse updates with FP&A, controllers, and sometimes even auditors. We stress-test assumptions, and we make sure the story is internally consistent. Banks notice when leadership is aligned.
Covenant negotiation is another underappreciated tool. Instead of treating it as a legal battle, I use it to align our operating rhythms with lender expectations. At Adteractive, where seasonality and customer acquisition cycles drove cash swings, we pushed for covenant structures that reflected reality rather than boilerplate templates. Those negotiations built breathing room and showed the bank that we knew our business deeply.
Rhythm matters. I structure quarterly updates in five sections: operating performance, liquidity position, covenant status, market risks, and forward actions. Every update closes with a signal of confidence. Over time, these memos created a reputation. One banker told me he used our template with other clients. That is the level of clarity banks want.
When surprises arise, own them early. In one company, we spotted an upcoming miss weeks before quarter-end. Rather than wait, we disclosed the issue with a mitigation plan. That conversation reinforced trust rather than damaging it.
In the end, the credit decision is not just about numbers. It is about visibility, credibility, and predictability. Banks reward companies that prepare, disclose, and manage risk with discipline. And just as important, they reward CFOs who respect their frame of reference.
I have raised over $75 million in lines of credit, venture debt, revolving facilities, and bankers’ acceptances throughout my career. Each success came not from ratios alone, but from relationships built on trust and rhythm. The lesson is consistent: banks are not adversaries. They are partners if you learn to meet them where they are.
Ten Key Ways Credit Departments in Banks Assess Your Business
- Quality of cash flow, not just absolute EBITDA.
- Revenue mix, including recurring versus transactional income.
- Customer concentration and diversification across industries and buyers.
- Collateral schedules and the recoverability of receivables, inventory, and equipment.
- Liquidity position and repayment horizon in downside scenarios.
- Accuracy and rhythm of financial reporting, including covenant monitoring.
- Management character, transparency, and response to setbacks.
- Forecasting quality, including downside and recovery models.
- Alignment of covenants with business rhythms and operating practices.
Operational maturity reflected in systems, controls, and compliance readiness.
