The Cash-Flow Squeeze Before the Licence Renewal
Mieke holds a Belgian community licence for four vehicles. Her balance sheet shows equity of EUR 42,000, a subordinated shareholder loan of EUR 30,000 repayable in 2029, and a bank overdraft of EUR 55,000. Her annual accounts show a net result of EUR 8,000 and depreciation of EUR 26,000. She has just lost her largest customer, worth 30 % of turnover, effective next quarter. Her renewal falls due in four months and she must demonstrate financial standing. She is considering drawing a dividend of EUR 20,000 to cover a personal matter, and asks whether the subordinated loan counts towards financial standing.
1. Assess Mieke's financial standing and whether the subordinated loan qualifies.
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Financial standing is assessed against the required amount per vehicle, demonstrated by own funds or by a bank guarantee, and it must be verifiable from annual accounts or a certified balance sheet. The key question is what counts as own funds.
A subordinated shareholder loan can be taken into account only if it is genuinely subordinated and meets the conditions for recognition - typically a fixed term, subordination to other creditors, and a documented commitment. A loan repayable in 2029 with proper subordination documentation may qualify; an informal loan will not. Mieke must produce the loan agreement, not merely assert it.
The overdraft is a liability, not own funds, and cannot be added. So the working figure is equity plus any recognised subordinated loan, less intangible and non-realizable items. On the figures given, Mieke's headroom is thin, and the loss of 30 % of turnover is a forward-looking risk that a prudent assessor will weigh.
The dividend is the decisive error: paying EUR 20,000 out of a position that is already marginal would reduce own funds immediately before assessment. Mieke should not declare it.
2. What should Mieke do in the four months before renewal?
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She should treat the four months as a remediation window, not a waiting period.
First, preserve own funds: cancel the dividend, and convert the shareholder loan into a properly documented subordinated instrument with a fixed term and clear subordination clause, or inject fresh equity.
Second, demonstrate liquidity and profitability separately. Financial standing is about own funds, but the undertaking must also be managed soundly. The net result of EUR 8,000 plus depreciation of EUR 26,000 suggests operating cash generation of roughly EUR 34,000 - she should build a 12-month cash-flow forecast showing the effect of losing the 30 % customer and how she will replace that volume. A credible plan is far stronger than a static balance sheet.
Third, consider a bank guarantee to top up the demonstrated amount if own funds remain short. Fourth, gather the documentation early: annual accounts, the loan agreement, the forecast. If she waits until the renewal month, she will have no time to cure a shortfall, and a lapse in the licence stops the business entirely.