What should I do when the bank starts asking awkward questions?

Why is the bank asking now?

There are several possible reasons, and they do not all mean the same thing. An overdraft or loan may have come up for its regular review. Your filed accounts may be late, or the latest figures may look weaker. The account may have spent more time near its limit than it used to. A covenant test may be due, or may have been missed. Sometimes the bank has changed how it looks at a whole sector, and your company is one of many getting the same letter.

We cannot tell you what your bank will do next, and nobody outside the bank can. So the sensible first step is to find out what is behind the question. Ask your relationship manager directly: what has prompted this, what do you need from us and by when?

Then write down the answer. A phone call can feel reassuring and leave you with nothing to work from a week later.

What should I read before I reply?

Your facility letter and any security documents, in full. It may be some time since you last read them. They set out what the bank can ask for and what it can do, and those details differ from one facility to another.

What to look for	What it means in plain terms	Why it matters now
Repayment terms	When the money has to be repaid, including whether the bank can ask for it on demand	An overdraft and a term loan can behave very differently
Financial covenants	Tests the company agreed to meet, often based on profit, cash or debt levels	A missed test may give the bank rights even if every payment has been made
Information requirements	What you agreed to send, such as accounts or management figures, and when	Sending them late is often an easy problem to fix, and an unnecessary one to have
Events of default	The list of things that let the bank act, which may go beyond missed payments	Tells you whether you are already in difficulty under the agreement
Security and guarantees	What the bank holds, and what you may have signed personally	Tells you what the bank holds and what you could be personally liable for

If the wording is not clear, ask a solicitor to go through it with you. We can help you organise the commercial picture, but what those documents mean in law is a question for a solicitor.

What does the official guidance say to check?

Look at your company's position honestly before you describe it to anyone else. GOV.UK's director duties page gives the two tests in everyday terms: a company is insolvent if it cannot pay bills when they become due, or if it has debts larger than the value of its assets.

The Insolvency Service's company health check says the two basic tests are the cash flow test and the balance sheet test, and that you should consider using them when you have concerns about solvency. It says signs of failing the cash flow test include late payments to suppliers who may issue reminder letters, threaten or start recovery proceedings, place trade accounts on stop or insist on payment in advance. It adds that falling into arrears with payments to HMRC can also be an indicator.

A question from the bank does not mean your company is failing either test. It is a good reason to check. GOV.UK's insolvency page also says that being insolvent does not always mean a company must stop trading, and that you should consider getting professional advice before deciding on the most appropriate option.

How do I put together an honest update?

A lender reading your update wants to know three things: what the position is, whether you understand it, and what you are doing about it.

Keep it short and put the figures first. The latest management accounts are a good start, along with a weekly cash forecast and lists of who owes you and who you owe. Say where you stand with HMRC, because leaving it out will not make it go away. Our post on why cash runs out before wages and VAT are due explains how to lay out a forecast week by week.

Then explain what has happened in a few plain sentences, without excuses. A lost customer, a contract that overran or a slow quarter are all things a bank has seen before. Say what you have already changed, and what you plan to change next, with dates.

Finally, say what you are asking for, if anything. That might be more time to deliver figures, a temporary change to a limit or a different repayment profile. Whether the bank agrees is its decision. Being clear about the request at least gives it something to decide.

Promise only what the forecast supports. A modest plan you keep is easier to stand behind than an ambitious one that keeps slipping.

Which mistakes make this harder?

Start with going quiet. Unanswered emails leave the bank to draw its own conclusions without your figures.

A forecast built on hope comes next. If it relies on a contract you have not won, say so, and show the version without it. Never give a bank figures you do not believe yourself. If there is a mistake in something already sent, correct it.

Paying the bank ahead of everyone else also needs care. Once a company is insolvent, GOV.UK's director duties page says directors must treat all creditors the same and cannot prioritise one over another. It also says they must make sure the company does not worsen the financial position of creditors. That can affect both which creditors you pay and whether you take on more borrowing. If you are unsure where the company stands, take advice before you decide.

What if the bank asks for a personal guarantee?

Slow down at this point. GOV.UK's page on personal guarantees says many lenders, landlords and suppliers request them to reduce their risk. It also sets out the disadvantages plainly: your personal assets such as your home, car, savings and investments could be used to settle that company debt, and if they are insufficient you may be declared bankrupt.

The same page says you must fully understand the terms before agreeing, including how much you are personally liable for if the company cannot pay. Take any new guarantee, or any extra security, to a solicitor before you sign. Our post on what to check about a personal guarantee goes through the detail.

When is this not the answer?

A clear update helps a company whose trading can support its debts. It will not fix one that cannot.

If your figures show the company cannot pay its debts on time, or owes more than it owns, speak to a licensed insolvency practitioner. For directors of an insolvent company, the director duties page lists consulting with or considering appointing one among the things they must do. The insolvency page lists options for a company that can continue to trade, including contacting creditors to discuss an informal agreement, a company voluntary arrangement, a restructuring plan, administration and a moratorium, and it tells you to check your options with a professional adviser first. Vanquish Capital is not an insolvency practitioner, a solicitor or an accountant, and we will tell you when you need one.

If the bank has sent a formal demand, or says it intends to enforce its security, take legal advice straight away rather than replying on your own. The Insolvency Service's page on company distress lists your accountant, a financial or business adviser and restructuring or turnaround advice among the places to go, and it says to use only reputable advisers. For free help with business debts, the health check guide points to Business Debtline.

And if the bank's question turns out to be routine, a tidy response may be all it needs. You will still have a current forecast and a clearer view of your own documents, both worth having.

Who can help you prepare?

If you would like someone alongside you, you can book a confidential consultation. We can help you rework the numbers, get your update in order and prepare for conversations with the bank and with regulated advisers. You can read more about our business recovery and director strategy work.