The first move, before reading any of the numbers, is to read the request itself. The MD is asking for a NZ$1.5m increase to a NZ$3.5m working capital line. Working capital lines are sized for the swing between when a borrower pays its suppliers and when its customers pay it back — the cash conversion cycle, in days, applied to the revenue base. So the question to ask before opening the financials is: how much working capital does a NZ$42m specialty food manufacturer need? The answer, for a healthy operation in this sector, is roughly NZ$3.5m to NZ$4.5m — DSO around 40 days, inventory around 50 days, DPO around 35 days, applied to NZ$42m of revenue. The borrower's existing facility is appropriately sized for the business at the current revenue level. The increase being requested is not, by ordinary commercial logic, needed.
So the first thing the numbers have to do is explain why the MD thinks NZ$5m is the right number. Open the file. Revenue grew 50% in two years — the MD's "best run yet" framing is correct on the top line. EBITDA grew too, but margin compressed 210 basis points — the volume came at price. DSO went from 48 days to 82 days — customers now pay nearly twice as slowly as they did two years ago. Inventory grew 138% on revenue growth of 50% — three times the rate of revenue. Operating cash flow flipped from positive NZ$1.4m to negative NZ$0.6m. Five numbers, all moving the same direction, all pointing at the same thing: the working capital cycle has approximately doubled, and the existing facility is no longer appropriately sized because the business is no longer the same business it was two years ago. It's bigger on the income statement and structurally tighter on the cash side. The NZ$1.5m increase the MD is asking for is not for growth. It's to plug the gap that growth has opened.
A senior banker reads this and considers, briefly, whether the right move is to approve the increase with conditions — borrowing-base structure, monthly aged debtors, a tighter covenant package. The instinct is reasonable. The borrower has been clean for six years, the increase is small in absolute terms, and declining outright would be the kind of move that ends a relationship. But run the math one more time. NZ$1.5m of additional facility, against approximately NZ$3.4m of additional working capital absorption already on the balance sheet (the DSO drag plus the inventory build, in dollar terms). The increase covers less than half of what the cycle has already absorbed. Approving the NZ$1.5m doesn't fix the structure; it pushes the next, larger conversation out by about six months — at which point the borrower will be back, probably asking for NZ$3m more, on a story that has deteriorated further.
The senior banker's read is C. Not because the relationship doesn't matter — it does — but because the kindest thing the bank can do for a six-year client whose cash cycle has doubled is to surface the structural problem now, while EBITDA is still positive, the covenants are still clean, and the borrower's own narrative still treats this as a growth story rather than a stress story. Two specific structures get this surfaced: either restructure the existing NZ$3.5m draw into a 3-year amortising term loan and provide a smaller, properly-sized working capital line on top — or renew the existing facility on tightened terms (borrowing-base, monthly reporting, quarterly review) with a clear understanding that the next conversation is about restructure, not about further increases. Either move forces the question. Approving as framed delays the question, which makes the eventual answer worse for everyone — the bank, the borrower, the relationship.
There's one specific thing this is not. It's not telling the MD his business is in trouble. It's not breaking the news that the bank has lost confidence. It's a senior banker doing the work the borrower hired the bank to do — reading the file with discipline, naming what the numbers say, and proposing the conversation the borrower's own CFO probably should have started six months ago but didn't. A bank that funds the deterioration in silence is not a better banking partner than one that surfaces it. It's a worse one. The MD will not enjoy the conversation. Six years from now, looking back from the other side of whatever happens next, he will be glad the bank had it.