Why a profitable installation company gets stuck at the bank as soon as it grows faster than its profit allows

The order book is fuller than ever. Two large commercial building projects have been won and revenue is going from 8 to 10 million. The annual accounts show a positive result. And yet the bank's account manager calls to say that the limit on the overdraft facility will stay where it is for now. The explanation the owner looks for himself is that the bank has become too cautious, or that the relationship has cooled since the previous account manager left. We come across both explanations, and sometimes they are true. The cause you can calculate is in the balance sheet.

The market is making this sharper right now. Techniek Nederland (press release, June 2026) reported that the installation sector is growing again and is increasingly running into capacity limits. In that market, those who do find staff grow fast, and growth costs money. At the same time, euro area banks said in the ECB Bank Lending Survey (July 2026, survey of banks) that on balance they tightened credit standards for business loans in the second quarter of 2026, that they expect further tightening in the third quarter, and that companies' demand for credit actually rose slightly, partly because of working capital needs. On top of that, according to De Nederlandsche Bank (statistics, May 2026), SMEs pay on average 3.6 percent interest on outstanding bank credit, against 3.1 percent for larger companies. So the credit you do get is also more expensive than that of the party you compete with on the building site.

In the worked example every euro of growth costs 23 cents of working capital

What follows is a worked example. The figures have been chosen to make the mechanics visible and deliberately kept ordinary: no extreme payment terms, no bad payer.

The company is an electrical and mechanical installer with 45 employees and €8 million revenue in 2025. Materials are 40 percent of revenue, subcontracting 10 percent. Profit before tax is 3 percent, €240,000. Customers pay after 60 days on average. Work that has been carried out but not yet invoiced, the work in progress, averages 30 days of revenue outstanding. There are 20 days of materials in stock and in the vans. Suppliers are paid after 45 days. The balance sheet also has a €300,000 loan for the vehicle fleet, on which €100,000 is repaid each year, and an overdraft facility of €700,000 drawn against a limit of €900,000.

This is what the working capital position looks like at the end of 2025 and after a year of growth:

Net working capital is €1,827,000 on 8 million revenue: 22.8 cents per euro of revenue, rounded to 23 cents. That figure does not change as the company grows, as long as payment terms and margins stay the same; it is a property of the business model. If revenue grows by 25 percent to 10 million in 2026, working capital grows along to €2,284,000. The increase is €457,000, and at the end of 2026 that money is tied up in the items in the table, with receivables as the largest.

On top of that comes the investment growth requires: vans and tools for the new fitters. In the worked example that is €100,000 above the normal replacement investment, which equals depreciation of €120,000. With the €100,000 loan repayment added, the total extra financing requirement in 2026 comes to €657,000.

Why profit does not keep up with growth

Against that €657,000 stands the profit for 2026. At the same 3 percent margin on 10 million revenue, that is €300,000 before tax. Corporate income tax (vennootschapsbelasting) in 2026 is 19 percent on the first €200,000 and 25.8 percent above that: 38,000 plus 25,800 is €63,800. Net, €236,200 remains, assuming the director-shareholder takes no dividend. The difference between the requirement and the profit is €420,800, and that amount ends up on the overdraft facility. It stood at €700,000 at the end of 2025 and at €1,120,800 at the end of 2026, against a limit of €900,000. By then the limit has been exceeded for months, and the owner has not run a single project at a loss that year.

Higgins (Financial Management, 1977; the article is behind the JSTOR paywall and there is no free version online) gave a formula for this: the sustainable growth rate, the growth rate a company can sustain without raising new equity and without letting its debt-to-equity ratio rise. The core of the formula is that growth is limited by the profit you keep in the company, divided by the assets each euro of revenue requires. Higgins assumes that the bank grows along in the same proportion as equity. If you drop that assumption, because the bank is in fact freezing the limit, the limit becomes stricter: the growth you can pay for from your own profit. In the worked example that is 2.4 cents of net profit per euro of revenue, divided by the 27.8 cents of working capital and investment each euro of revenue requires, minus those 2.4 cents. That is about 9 percent, repayments not included. As a formula:

Internal growth rate = net profit per euro of revenue, divided by (working capital per euro of revenue plus investment per euro of revenue, minus net profit per euro of revenue), times 100 percent.

In the worked example: 2.4 divided by (22.8 plus 5 minus 2.4) is 2.4 divided by 25.4, is 0.094; times 100 percent is 9.4 percent.

Every percentage point of growth above that has to come from somewhere else: from the bank, from an investor, from a higher margin or from shorter working capital.

We see at installers that this 9 percent is rarely known. The owner knows his margin and his order book. The figure that limits growth is nowhere on the dashboard. And so 25 percent growth is celebrated, while financially it is almost three times the rate the company can carry itself.

What the bank sees when you ask for a higher limit on your overdraft facility

The bank calculates with four things: can the company pay interest and repayments, how much equity is underneath, what is the coverage of the credit, and how up to date are the figures on which it bases that assessment.

Two of the four rows are in order, and those are exactly the two the owner watches himself. The rejection comes from the other two.

A bank finances working capital on the basis of what it can collect in a bankruptcy. Receivables are then invoices to third parties with a legal claim behind them; a percentage applies to them, 60 percent in the worked example, and invoices older than 90 days do not count. Work in progress is work that has not yet been invoiced. In an installer's bankruptcy that work is virtually unsaleable for the bank, so it values it at zero. Exactly the item that rises sharply with fast growth, €164,000 in the worked example, counts for nothing at the bank. The percentage on receivables differs per bank and per customer profile; ask about it, because it determines your maximum limit more than your profit does.

The vans, the tools and the inventory are also at zero in that coverage. A bank matches the term of the credit to the life of the asset behind it. A van lasts six to eight years and pays for itself over those years through the revenue of the fitter who drives it; that is why the bank finances it with a loan or lease whose repayments follow those years, and that financier already has a pledge on it or owns it. The same van cannot serve as collateral twice. An overdraft facility works differently: it finances the weeks between paying for your purchases and collecting your invoice, and is repaid within that cycle from incoming customer payments. So the bank wants the coverage for that credit in assets that turn into money in those same weeks, and those are the invoices. In addition, a van fetches a fraction of its book value in a forced sale. An installer's materials inventory is spread across vans and projects, is partly already used and fetches little on enforcement. We see that banks usually leave an installer's inventory out of the coverage; ask your bank whether it applies a percentage to it. What remains is the item that turns into money within the cycle and that the bank can collect in a bankruptcy: the receivables, and of those the part that is young enough to be paid without discussion.

There is a reason the bank freezes the limit in such a case instead of asking for a higher interest rate. Stiglitz and Weiss (American Economic Review, 1981) showed why a bank that cannot fully assess a customer's risk prefers to limit the amount of credit rather than raise the price: a higher interest rate attracts precisely the customers who take the most risk, and drives away the cautious ones. So the bank rations on quantity, and those who cannot make their risk visible get the smallest ration. That fits with the ECB survey of July 2026, in which banks mainly attributed the tightening to a higher risk assessment and lower risk tolerance. For a growing installer this means in practice that the figures the bank does not have are filled in as bad news in its risk assessment.

Calculate per project, because the annual average hides the peak

The €457,000 in the table is an annual figure. The real money is spent per project, and there the peak comes earlier and higher than the average shows.

Take one commercial building project from the growth: €600,000 contract sum excluding VAT, six months' duration, 90 percent costs spread evenly, €90,000 a month. Of those costs €54,000 is materials and subcontracting, on which 21 percent VAT is paid, and €36,000 is own labour. Suppliers are paid in the month after delivery. The company invoices monthly in arrears in proportion to progress, €100,000 plus €21,000 VAT, and the client pays after 60 days. VAT goes through the monthly return: the VAT on a month's sales invoice is paid in the following month, the VAT on that month's purchases is reclaimed in the same return, and the balance goes to the Dutch Tax Administration.

The project yields €60,000 margin, and that is exactly what is left in month eight. In month two, however, the project is €147,000 in the red, almost two and a half times the margin, and that peak shifts to the overdraft facility. VAT reinforces this: the €21,000 VAT on the first sales invoice has to go to the Dutch Tax Administration in month two, while the customer only pays that invoice in month three. Three such projects at the same time, which is a normal picture with 2 million of extra revenue, require €441,000 at their peak, almost the full annual amount of €457,000, concentrated in the first two months after the start.

Richards and Laughlin (Financial Management, 1980) called the time between paying for your purchases and collecting your sales the cash conversion cycle, and showed that this cycle says more about a company's liquidity than the current ratio from the annual accounts. In the worked example that cycle is 65 days net: 20 days of inventory, 30 days to the invoice and 60 days to payment, minus 45 days of supplier credit. Every day you take off it lowers the peak. Baños-Caballero, García-Teruel and Martínez-Solano (Journal of Business Research, 2014) found that the relationship between working capital and company performance has the shape of an inverted U: too little working capital costs revenue, too much costs return and financing headroom, and the optimum is lower the harder it is for a company to obtain financing. For an installer whose bank freezes the limit, that underpins something he already feels: every day you take off your cycle is a day of growth you can pay for.

What is acceptable, and when do you know

Four questions determine whether your growth rate fits your financing; there is no fixed sector norm for this. The do-it-yourself version is included, because not everyone has the proper method, a monthly liquidity forecast per project.

1. How many cents of working capital does each euro of revenue cost? Take the latest annual accounts, add up receivables, work in progress and inventory, deduct payables, and divide by revenue. In the worked example that is 23 cents. We see at installers that working capital above 30 cents per euro of revenue usually points to a cycle that is too long, and that the cause then lies in invoicing or in the payment terms.
2. How much growth can the company pay for from its own profit? Net profit per euro of revenue, divided by the amount from question 1 plus the investment per euro of growth, minus that net profit, times 100 percent. In the worked example 9 percent. If the planned growth rate is above that, the difference has to come from outside, and you have that conversation before the growth starts.
3. What is the coverage the bank calculates, and how far are you from it? Receivables younger than 90 days times your bank's percentage. If use of the overdraft facility at its peak is above 80 percent of the limit, the moment to apply has almost passed.
4. How old are the figures the bank has from you? Annual accounts that are six months old are a risk premium for a bank. Monthly figures with a twelve-month liquidity forecast remove that premium.

If you answer these four questions and are within the margin on all four, you have no problem, even with 25 percent growth. That happens, particularly at installers with many maintenance contracts invoiced in advance. The outcome in which nothing is wrong exists, and it is worth establishing that before you call an adviser.

When this does not apply

The worked example relies on three properties: invoicing in arrears, a 60-day payment term and a 3 percent margin. Change one and the picture tips.

An installer in the consumer market, fitting heat pumps and solar panels for private customers, often asks for a 30 to 50 percent deposit on order and the rest on completion. His receivables are small, his work in progress is financed by the customer, and his working capital per euro of revenue can be below 10 cents. For him, 25 percent growth is affordable from his own profit. The same applies to the service and maintenance installer who invoices subscriptions in advance. And with a 6 percent margin instead of 3, the internal growth rate from the worked example doubles to almost 20 percent; the overdraft facility then stays just below the limit in the first growth year and only fills up in the second year.

The reverse also holds. If an installer works for main contractors who pay in 90 days and retain 5 percent until completion, working capital per euro of revenue rises towards 35 cents and the internal growth rate falls to about 6 percent. Anyone who wants to grow 25 percent in that chain already needs the bank, or a different system of stage payments, before the first new project starts.

What can an installation company do if the bank will not raise the credit limit?

Below are five measures. Each states where the figure or the source comes from, and because we earn our money with exactly this kind of management information, you may read the third and the fifth with extra suspicion.

1. Shorten the cycle before you ask for more credit. Invoice weekly instead of monthly and agree stage payments at the start and at milestones for new projects. For material-intensive contracts that includes a deposit equal to the material costs. In the worked example, one week less work in progress on 10 million revenue takes about €190,000 off working capital, and a payment term of 50 instead of 60 days another €330,000 or more. Together that is more than the €457,000 that growth requires in 2026. According to Baños-Caballero and colleagues (2014), the optimal level of working capital is lower the harder it is for a company to obtain financing; a frozen limit is the clearest signal of that.
2. Make work in progress visible and substantiated. The bank values it at zero because it cannot assess it. A monthly project statement showing, per project, the contract sum, progress, the amount invoiced and the expected final margin does not yet produce a coverage percentage, but it does produce a lower risk assessment. In the worked example this concerns €822,000 that is currently out of sight.
3. Give the bank monthly figures and a twelve-month liquidity forecast, even if it does not ask for them. Kysucky and Norden (Management Science, 2016) found in a meta-analysis of more than a hundred studies from more than twenty countries that long and close bank relationships lead to more available credit, lower interest rates and lower collateral requirements, and that this advantage is greater where banks compete with each other. A relationship becomes close through information, and the 3.6 percent from the DNB figures is an average you can get below. The article on rolling forecasts describes how to set up such a forecast.
4. Fill the collateral shortfall with the BMKB. Under the Borgstelling MKB-kredieten (SME Credit Guarantee Scheme, BMKB) of the Netherlands Enterprise Agency (RVO) (scheme, 2026 conditions) the government guarantees 90 percent of the part of a bank loan for which collateral is lacking, the guaranteed credit. That part is at most half of the total credit and at most €1.5 million per company; the scheme applies to companies with up to 250 employees. The lender pays a one-off guarantee fee which it passes on: 3.9 percent of the guaranteed credit for a term of up to two years, rising to 5.85 percent for a term of seven to twelve years (RVO rates, 2026). In the worked example the shortfall is the difference between the required €1,120,800 plus buffer and the coverage of €955,000. The bank decides whether to grant the guaranteed credit and registers it with RVO; you raise the scheme.
5. Set the growth rate against the internal growth rate and choose deliberately. Higgins (1977) wrote that a company that structurally grows faster than its sustainable growth rate eventually has to choose between less growth, more equity, a higher margin or a shorter cycle. In the worked example 9 percent is the limit from own resources. So anyone who wants 25 percent explicitly chooses one of those four, and puts that choice on the table at the bank before the limit is full. The ECB survey of July 2026 shows that banks expect further tightening in the third quarter; an application that is already substantiated and on the table is assessed differently in such a quarter from an application that comes out of an overdrawn account.

The annual accounts show the correct result. To steer growth you need a second figure next to it: working capital per euro of revenue, and the growth you can pay for with that from your own profit. The €420,800 from the worked example sits on the overdraft facility, and you will not find it on any line of the profit and loss account.

Frequently asked questions about growth, working capital and the bank at an installation company

Why will the bank not raise my credit limit when I am making a profit?

Because the bank assesses working capital credit on collateral coverage and on the quality of your figures, and on both counts a fast-growing installation company scores worse than its profit suggests. Receivables partly count as collateral and work in progress does not; on top of that, annual accounts that are six months old raise the risk assessment. In the worked example in this article the DSCR is 3.0 and the solvency ratio 43 percent, and yet the required credit of €1,120,800 does not fit within coverage of €955,000.

How much working capital do I need if my revenue grows by 25 percent?

First calculate how many cents of working capital each euro of revenue requires: receivables plus work in progress plus inventory, minus payables, divided by revenue. In the worked example that is 23 cents. With €2 million of extra revenue the requirement is then €457,000, plus the investment in vans and tools. That money has to be there before the profit on that revenue comes in.

How fast can my company grow without extra bank credit?

Divide your net profit per euro of revenue by the working capital and investment per euro of revenue, minus that net profit, and multiply by 100 percent. In the worked example: 2.4 cents divided by 27.8 minus 2.4 cents is 0.094, times 100 percent is about 9 percent a year. Higgins (1977) called the variant in which the bank grows along the sustainable growth rate; it is higher, but assumes exactly the limit increase that does not happen in this article.

Does work in progress count as collateral for the bank?

As a rule, no. A bank lends against what it can collect in a bankruptcy, and work that has not yet been invoiced is then worth almost nothing. Receivables younger than 90 days do count, at a percentage that differs per bank. In the worked example €822,000 of work in progress is outside the coverage. A monthly project statement lowers the risk assessment on which the bank rations credit, even though it does not provide coverage.

What is the BMKB and when do I qualify for it?

The Borgstelling MKB-kredieten is a scheme of the Netherlands Enterprise Agency (RVO) under which the government guarantees 90 percent of the part of a bank loan for which collateral is lacking. That guaranteed credit is at most half of the total credit and at most €1.5 million per company, for a one-off guarantee fee of 3.9 percent for a short term up to 5.85 percent for a long term. The scheme applies to companies with up to 250 employees and annual revenue up to €50 million or a balance sheet total up to €43 million. The bank decides and registers the credit with RVO; you raise the scheme.

What does the bank look at when you apply for a higher overdraft facility?

At the debt service coverage ratio (can the company pay interest and repayments from EBITDA), the solvency ratio (how much equity is underneath), the coverage (what part of the credit is backed by receivables and other collateral) and how up to date the figures are. Stiglitz and Weiss (1981) showed that a bank that cannot properly assess risk limits the amount of credit instead of raising the interest rate, and the less the bank knows about you, the smaller that ration turns out.

How do I calculate my company's DSCR?

Take profit before tax, add interest expense and depreciation, and divide that by the sum of interest and repayments over the same year. In the worked example: 300,000 plus 60,000 plus 120,000 is €480,000, divided by €160,000 interest and repayments, gives 3.0. The banks we work with usually apply a floor of around 1.2 to 1.3; ask your bank which standard it uses and whether it calculates with EBITDA or with operating cash flow.

This article was written in collaboration with our partner Claassen Moolenbeek & Partners.

Further reading: Cash flow as a brake on growth: why SMEs get stuck and how to break through and Rolling forecasts: steering in uncertain times. Also relevant: What the ECB rate rise costs a technical wholesaler that gives its customers 52 days to pay. New: Why a machine builder with €700,000 of work in progress makes a profit and still hits its credit limit. New: Why a machine with a 3.2-year payback period costs €434,375 in year one. New: Why a food producer with €400,000 profit has €60,869 less in the bank. New: how an engineering firm with €7.2 million revenue decides whether it needs a CFO or a controller.

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