Borrowing Against Your Balance Sheet When Your Assets Have Disappeared
- Apr 11
- 3 min read
Updated: Apr 12
A business that carries assets on their balance sheet presents very differently to a lender than a balance sheet that shows the business owns nothing.
In Australia, a significant number of SMEs are presenting to lenders as the second type of business. This is not because they have no assets, but because those assets have been recorded as expenses under the instant asset write-off, or accounting has been made to equal tax and the assets have no carrying value on the balance sheet.
This is a direct, quantifiable cost of mismanaging the relationship between tax depreciation and accounting depreciation.
How Lenders Think About Fixed Assets and Your Balance Sheet
Commercial lenders typically assess creditworthiness using metrics that are directly affected by what appears on the balance sheet:
Net tangible assets (NTA) — total tangible assets minus total liabilities. The primary measure of balance sheet strength for SMEs.
Asset coverage ratio — the value of assets available to secure a loan relative to the loan amount.
Gearing ratio — total debt relative to equity or total assets. A business with no fixed assets will show higher gearing than its operations justify.
Quality of earnings — adjusted EBITDA. Depreciation policy directly affects reported earnings, especially where assets have been expensed through the P&L.
When fixed assets are absent from the balance sheet, every one of these metrics deteriorates or becomes difficult and time consuming to calculate accurately.
A Real-World Scenario
Two construction businesses. Identical operations: $5 million annual revenue, $800,000 EBITDA, $1.2 million of plant and equipment.
Business A maintains separate accounting and tax depreciation records. Its balance sheet carries plant at approximately $750,000 net book value.
Business B applies tax depreciation directly to its books. Most assets were claimed under instant asset write-off or SBE pooling. Fixed assets on the balance sheet: approximately $80,000.
Metric | Business A | Business B |
Fixed assets (net book value) | $750,000 | $80,000 |
Net tangible assets | $620,000 | ($50,000) |
Gearing ratio | Moderate — assets support debt | High — liabilities exceed tangible assets |
Borrowing capacity | Strong | Constrained - negative NTA |
Lender perception | Well-managed, asset-backed | Asset-light, higher credit risk |
Both businesses are operationally identical. The only difference is their depreciation policy.
The difference in borrowing capacity between these two businesses, across a typical refinancing cycle, could represent hundreds of thousands of dollars in accessible credit, or the difference between securing a facility and being declined.
The Working Capital Implication
Many working capital facilities and invoice financing arrangements include covenants tied to NTA or gearing ratios. A business that inadvertently breaches a covenant because its accounting records no longer reflect its asset base creates an entirely avoidable problem, triggered not by business deterioration, but by depreciation policy.
The Valuation Implication
When a business is sold, buyers and their advisors normalise the financial statements.
Assets written off for tax but still in productive use will be identified and revalued during due diligence.
For vendors who want clean, fast, high-confidence sale processes, a well-maintained balance sheet is part of the preparation, not just a compliance matter.
What the Register Needs to Support a Lending Conversation
A fixed asset register that supports a borrowing case needs to:
Carry per-asset accounting values (not just tax WDV)
Reflect current replacement cost or market value
Be maintained consistently so values are credible to a third-party reviewer
Support a balance sheet that accurately reflects the tangible asset base
When the register is right, the lender conversation changes entirely.
Know a client who's been knocked back on finance, or had a facility constrained?
The balance sheet may be the issue, and the fix may be simpler than they think. Forward this article, or book a conversation about how Dwindle supports accurate balance sheet reporting.
Also in this series: The Zero-Asset Balance Sheet | Ratio Analysis and the Invisible Asset Problem | QBCC, NTA Thresholds, and the Fixed Asset Register You Cannot Afford to Get Wrong
This article is general in nature and does not constitute financial, tax, investment, or legal advice. Readers should consult a registered tax agent or accountant for advice specific to their circumstances.
