When I'm reviewing a business for lending, I don't just look at the profit and loss statement.
I spend a lot of time on the balance sheet.
Why?
Because the P&L tells me what happened over a period of time.
The balance sheet gives me a snapshot of what the business has actually built.
It can tell me about liquidity, debt, accumulated equity, assets, shareholder funding and potentially what options might exist next.
Here are five areas I look at.
1. Cash
The first one is simple.
How much cash does the business have?
But the number on the balance sheet is only the beginning.
I want to understand:
Is that a normal cash balance?
Is some of it allocated for GST or tax?
Does the business need that cash for upcoming expenses?
Does cash fluctuate significantly throughout the month?
Is it needed for seasonal working capital?
Is there an appropriate emergency buffer?
Could some of it be offsetting interest-bearing debt?
A business with $500,000 in the bank might look incredibly liquid.
But if $300,000 is needed for tax and suppliers next month, the picture is very different.
Cash only means something when you understand what it's there for.
2. Equity
Next, I look at equity.
Equity broadly represents the value accumulated in the business after its liabilities are deducted from its assets.
A strong equity position can tell us that the business has retained value over time.
It can also be relevant when we're thinking about the overall strength of a borrower and future lending opportunities.
But again, we need to understand what sits behind the number.
A business may have significant equity tied up in equipment or property but relatively little cash.
Another may have strong retained earnings and substantial liquidity.
Same heading on the balance sheet, very different financial positions.
3. Shareholder current account
This is one business owners don't always fully understand.
A shareholder current account broadly records certain amounts moving between a company and its shareholders.
Depending on the balance, it can indicate that shareholders have introduced money into the business or that amounts are owed in the other direction.
When I'm reviewing lending, I want to understand:
why the balance exists
how it arose
whether it changes significantly year to year
whether shareholder funding is supporting the business
what the accountant's intended treatment is.
It can be an important piece of the overall financial story.
Your accountant should advise on the accounting and tax treatment of your shareholder current account, but from a lending perspective, it's absolutely something I want to understand.
4. Plant and equipment
This is one of my favourites because business owners can overlook just how much value is sitting inside their business.
Vehicles.
Trucks.
Diggers.
Machinery.
Manufacturing equipment.
Tools.
A business may have accumulated significant plant and equipment over many years.
I want to understand what is owned, what is financed, what the assets are worth and how essential they are to generating revenue.
Why?
Because those assets may be relevant to future funding structures.
For example, there may be situations where refinancing an unencumbered business asset can release liquidity rather than relying on property equity or draining cash reserves.
Plant and equipment aren't just things the business owns.
They are part of the balance sheet, and the balance sheet can create options.
5. Liabilities
Finally, I want to know what the business owes.
That includes obvious bank debt, but I also want to understand other liabilities.
Depending on the business, that may include:
term debt
overdrafts
asset finance
trade creditors
tax liabilities
shareholder funding
other loans and obligations.
Then I want to understand the structure.
What is short term?
What is long term?
What interest rates are being paid?
What security sits behind the debt?
How quickly is it being repaid?
And most importantly:
Does the debt structure actually suit the assets and cashflow of the business?
Why does the balance sheet matter for business lending?
Because lending isn't assessed purely on whether your business made a profit last year.
We need to understand the wider financial position.
A strong business may have:
valuable assets
accumulated equity
significant cash
manageable liabilities
good liquidity.
Another business could generate an impressive profit while carrying substantial debt and having very little cash.
The P&L alone won't tell you that.
Your balance sheet can also reveal future opportunities
This is where it becomes particularly interesting for business owners.
Understanding your balance sheet can help when you're thinking about:
buying commercial property
purchasing another business
buying more equipment
funding growth
releasing liquidity
restructuring debt
investing outside the business.
Sometimes the capacity to do the next thing has been sitting on the balance sheet all along.
You just haven't looked at it through that lens.
What does your balance sheet say about your business?
If you've built a successful business over a number of years, there may be more sitting on your balance sheet than you realise.
And understanding it isn't just about looking backwards.
At Vesta, we look at the bigger picture across your business, personal position, assets, debt and future plans.
Because sometimes the opportunity isn't about earning more. It's about making what you've already built work harder.
Frequently Asked Questions
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A balance sheet is a financial statement showing a business's assets, liabilities and equity at a particular point in time.
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A profit and loss statement shows income and expenses over a period. A balance sheet provides a snapshot of the assets, liabilities and equity of the business at a particular date.
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A balance sheet helps a lender understand the financial strength of a business, including its assets, liabilities, equity and liquidity. It is considered alongside profitability, cashflow and other information.
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Potentially. The existence, value and financing status of plant and equipment may be relevant to certain lending structures. It does not automatically mean additional borrowing will be available.
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Broadly, a shareholder current account records certain financial transactions between a shareholder and the company. The meaning of the balance depends on the transactions involved, so business owners should speak to their accountant about their specific position.
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Cash is generally valuable for liquidity, but context matters. Some cash may be required for tax, suppliers, working capital or upcoming expenses. It is important to understand both the amount of cash and its purpose.
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Potentially. Cash, assets, equity and the existing debt position can all be relevant when considering future funding opportunities. Lending capacity will also depend on serviceability, security and the proposed transaction.
About Vesta Finance & Advisory
Vesta Finance & Advisory is an independent financial advisory firm based in Hawke's Bay, helping clients throughout New Zealand with residential lending, business lending, property investment finance, KiwiSaver advice and long-term wealth planning. We work with professionals, business owners, property investors and families to create lending strategies that support their financial goals—not just today, but for years to come.
Disclaimer : This article is for general information and educational purposes only. It does not constitute personalised financial advice. Private Banking eligibility, lending criteria and available services vary between banks and depend on your individual circumstances. Before making any financial decisions, we recommend seeking personalised advice from a qualified financial adviser.
Posted October 2026