Tangible net worth, before anything else. Not turnover, which tells you how busy a business is rather than how much of a loss it could absorb, and not the headline equity figure if a material part of it is goodwill, capitalised development costs or a director’s loan that can be repaid at will. What we are looking for is the amount of real capital standing behind the counter-indemnity.
Then the bond exposure against that number. A single €500,000 performance bond on a business with €400,000 of tangible net worth is not a credit decision, it is a coin toss. Aggregate matters more than the individual bond: the question is what the whole live book would cost the applicant if every obligation crystallised in the same bad year.
Third, working capital, and specifically whether it is real. Debtor days that have drifted from 45 to 90, a creditor balance growing faster than turnover, or a revolving facility that was fully drawn at the year end all say the same thing in different ways, and they say it earlier than the profit and loss account does.
Fourth, the gap between the audited accounts and the management figures. Nine months of management accounts on a set of audited statements that are fifteen months old is normal. What is not normal is management accounts that tell a materially better story than the last audited year with no transaction to explain it. We will ask about the difference, and a clear answer is usually the end of the matter.
None of this is a scoring model. Two businesses with the same ratios get different answers if one has been doing the same work for twenty years and the other moved into a new sector last spring. But the four things above decide whether the file goes forward, and a submission that addresses them without being asked is a submission that gets a decision quickly.
Written by the underwriting team at FDI Insurance d.a.c., Dublin. This piece is general information, not advice on any particular transaction — and it is not an offer of insurance.
