Credit Assessment: INC. DESIGN LIMITED

1. Credit Opinion: CONDITIONAL

INC. Design Limited presents a mixed credit profile that warrants conditional approval. The company is long-established (incorporated 1993) with a stable family management structure and has demonstrated recent profitability, with net assets growing from £218,060 (2023) to £348,341 (2025). However, several material concerns exist: the cash position is critically depleted at just £1, total assets have contracted significantly from historical levels (down from £1.09M in 2017 to £558K in 2025), and existing security arrangements with National Westminster Bank Plc include a mortgage debenture over all assets and a legal charge over the investment property. Any new facility would be subordinated to these existing encumbrances, significantly limiting recovery prospects in a distressed scenario.

The conditional approval is predicated on additional due diligence on debtor quality (trade debtors stand at £465,621 – a substantial concentration risk), clarification of the composition of "other creditors" (£219,195), and appropriate security or guarantee structures to mitigate the near-zero liquidity position.

2. Financial Strength

Balance Sheet Summary (Year Ending 31 October 2025):

Positive Indicators: - Net assets have strengthened by £62,708 (21.9%) year-on-year, indicating retained profitability - Shareholders' funds of £348,341 provide a reasonable equity buffer - The company owns property (land and buildings valued at £125,000) offering some tangible asset backing - P&L reserve has grown to £324,455, demonstrating accumulated retained earnings

Concerning Trends: - Long-term contraction: Net assets peaked at £480,726 in 2016 and have declined by 27.6% over nine years - Cash has collapsed from £165,017 (2016) to £1 (2025) – a near-total erosion of liquid reserves - The asset base has shifted heavily towards debtors (£521,226 representing 93.5% of current assets), creating concentration risk - Total liabilities remain high relative to the business scale at £430,302

Leverage Assessment: - Debt-to-equity ratio: Total liabilities (£430,302) / Shareholders' funds (£348,341) = 1.23x - This is moderately high, though improved from 1.80x in 2024 - Existing secured debt with NatWest (debenture over all assets) limits available collateral for new facilities

3. Cash Flow Assessment

Working Capital Position:

Liquidity Analysis:

The working capital position has improved year-on-year, with net current assets rising from £87,850 to £127,413. However, the composition of current assets is deeply concerning:

• Trade debtors: £465,621 (83.5% of total current assets) – an exceptionally high concentration
• Stocks: £36,488 – relatively modest
• Cash: £1 – critically insufficient for operational requirements

The near-zero cash position means the company is entirely dependent on timely debtor collection to meet obligations. Current liabilities include bank facilities of £99,433 falling due within one year, plus trade creditors of £58,478 and taxation/social security of £41,442.

Debt Structure:

The Bounce Back Loan of £50,000 (2.5% fixed rate, 6-year term commenced June 2020) appears within the bank loans/overdrafts figure. The "other creditors" balance of £219,195 warrants investigation – this could include director loans, accruals, or other obligations that may affect cash flow priorities.

Cash Flow Concerns: - The company appears to be operating on a hand-to-mouth basis with no cash buffer - Any delay in debtor collection or significant bad debt could create immediate solvency pressure - Debtors decreased from £582,098 to £521,226 – while this may indicate improved collection, it could also signal declining revenue

4. Monitoring Points

Priority 1 – Immediate Concerns: 1. Cash position: Monitor monthly to ensure the £1 balance is not indicative of ongoing cash flow distress. Request 3-month rolling cash flow forecasts. 2. Debtor quality and aging: Obtain full aged debtor analysis. Trade debtors of £465,621 require assessment of collectability, concentration (top 10 customers), and days sales outstanding. 3. "Other creditors" composition: Clarify the nature of the £219,195 balance – particularly whether any amounts are due to connected parties or represent deferred obligations.

Priority 2 – Ongoing Surveillance: 4. Revenue trajectory: The P&L account is not filed (filleted accounts), making profitability trends opaque. Request management accounts to assess turnover and margin trends. Headcount increased from 5 to 7 employees, suggesting growth ambitions, but this must be supported by revenue. 5. Existing security position: National Westminster Bank holds a debenture over all assets and a legal charge over the investment property. Any new facility must account for this prior ranking. 6. Debtor concentration risk: With 83.5% of current assets in trade debtors, the business is vulnerable to customer default. Monitor for bad debt provisions.

Priority 3 – Strategic Considerations: 7. Business scale trajectory: Total assets have declined from £1.09M (2017) to £558K (2025). Understand whether this reflects deliberate de-leveraging, business contraction, or asset disposals. 8. Property valuation: The investment property is valued at £125,000 by an independent valuer. Confirm this valuation is current and reflects market conditions. 9. Director remuneration and related party transactions: As a husband-and-wife-owned business, understand how profits are extracted and whether director loans exist within "other creditors."