SWARN PROPERTIES LIMITED

1. Credit Opinion: CONDITIONAL

Swarn Properties Limited is recommended for conditional approval. The company possesses a strong underlying asset base and very low external bank leverage, but the balance sheet structure is heavily distorted by a near-£1m director loan classified as a current liability. This creates a severe technical working capital deficiency. Credit approval is conditional upon receiving confirmation that the £974k director loan is not repayable on demand, and ideally, securing a formal subordination agreement ensuring the directors' loan ranks behind any bank facilities.

2. Financial Strength

The company demonstrates solid balance sheet resilience driven by property assets, though structural quirks require attention: * Asset Base: Total assets stand at £2.33m, anchored almost entirely by the revaluation/cost of the property (£2.33m). In the latest period, the property was reclassified from an Investment Property to a Tangible Fixed Asset, resulting in a 1% straight-line depreciation charge (£24k) rather than fair value adjustments. * External Leverage: External bank debt is remarkably low. There is £30k in bank loans/overdrafts due within one year and £143k due after one year, totaling just £173k. Against a £2.33m property valuation, the Loan-to-Value (LTV) ratio is approximately 7.4%, providing an enormous equity cushion. * Director Loan Impact: Net assets are healthy at £1.135m. However, current liabilities include £973,987 owed to directors. If treated as equity/quasi-equity (which is typical for long-standing family property companies), the true gearing is highly conservative. If treated as a callable current debt, the company is technically insolvent on a current basis. * Trajectory: Net assets have grown steadily from £939k in 2018 to £1.135m in 2025, demonstrating gradual wealth accumulation and financial stability.

3. Cash Flow Assessment

• Liquidity: The current ratio is severely skewed at 0.03 (£27k current assets / £1.07m current liabilities). As noted, this is entirely driven by the director loan. Stripping out the director loan, current liabilities drop to roughly £103k, leaving a healthy cash position relative to genuine third-party trade and tax obligations.
• Cash Generation: Cash at bank improved from £10.8k to £27.4k. The P&L reserve increased by approximately £19.5k, indicating the company generated a profit and positive operating cash flow during the period. The absence of trade debtors suggests rental income is either collected promptly or settled at the balance sheet date.
• Debt Service: With only £173k in external bank debt, the company's debt service burden is minimal. Rental income from the property clearly covers this with a wide margin of safety.

4. Monitoring Points

• Director Loan Subordination: Secure a deed of subordination or a letter of comfort confirming the £974k director loan is not repayable on demand and ranks behind the bank's facilities.
• Property Reclassification: Monitor the impact of the accounting policy change. The shift from Investment Property (usually held at fair value) to Tangible Fixed Assets (depreciated at 1%) means future accounts will see a steady reduction in the net book value of the property, which could gradually erode stated net assets.
• Rental Income Verification: As the company files filleted accounts, no turnover or profit & loss figures are disclosed. Regular verification of rental income and interest cover ratios is essential to ensure the property is actually tenanted and generating cash flow.
• Tax Liability: The corporation tax liability decreased from £20.6k to £8.7k; ensure ongoing tax compliance is maintained given the shift in asset classification.