Gainsborough Fashions Ltd operates a small chain of fashion shops. In recent months the business has been under pressure from its suppliers to reduce the average credit period taken from three months to one month. As a result, the directors have approached the bank to ask for an increase in the existing overdraft for one year to be able to comply with the suppliers€™ demands.
The most recent financial statements of the business are as follows:

A dividend of £23,000 was paid for the year.
Notes:
1 The loan notes are secured by personal guarantees from the directors.
2 The current overdraft bears an interest rate of 12 per cent a year.

Required:
(a) Identify and discuss the major factors that a bank would take into account before deciding whether to grant an increase in the overdraft of a business.
(b) State whether, in your opinion, the bank should grant the required increase in the overdraft  for Gainsborough Fashions Ltd. You should provide reasoned arguments and supporting calculations where necessary.

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ASSETS Non-current assets Property, plant and equipment 74,000 Current assets 198,000 3,000 201,000 275,000 Inventories at cost Trade receivables Total assets EQUITY AND LIABILITIES Equity £1 ordinary shares 20,000 General reserve 4,000 Retained eamings 17,000 41,000 Non-current liabilities Borrowings – loan notes repayable in just over one year's time 40,000 Current liabilities Trade payables Accrued expenses Borrowings - bank overdraft 162,000 10,000 17,000 5,000 194,000 275,000 Taxation Total equity and liabilities Abbreviated income statement for the year ended 31 May Sales revenue Operating profit Interest charges Profit before taxation Taxation Profit for the year 740,000 38,000 (5,000) 33,000 (10,000) 23,000