Fans of the Dragon's Den, BBC's addictive venture capitalist programme, will be well aware of the importance of preparing realistic financial projections before seeking capital to start or expand a business.

The Dragons - five successful businesspeople willing to invest money in companies that show potential - routinely rip to shreds entrepreneurs naive enough to pitch their business idea without doing their financial homework.

If they struggle to provide a reasonable estimate of sales and profit growth for the first three years, or to explain what exactly they intend to use the investment for, they're quickly shown the door.

Although only a handful of Irish entrepreneurs have braved the wrath of the Dragons, the principle remains the same no matter what the source of funding - financial projections are crucial.

John Kelly, head of small business banking at AIB, says that companies must prepare a detailed month-by-month breakdown of projected figures for the first year, and "guesstimates" for years two and three, in order to secure a loan.

Rather than concentrating on anticipated sales, cash-flow projections are the most important thing from a lender's perspective.

"Banks in general are cash-flow lenders," Kelly explains. "We lend money on the ability of small businesses to generate cash to pay interest and the principal of the loan.

"Most [small businesses] cease to trade not because they run out of sales, but because they run out of cash," he says, adding that cash is the lifeblood of any business.

Banks will also scrutinise the overall business plan, as well as considering the amount of equity the founder is putting up themselves. Banks like to see that the entrepreneur is really committing to the project by putting up their own money, he explains. "There has to be some risk sharing."

A further consideration of the bank will be the availability of any third-party equity to the start-up, such as grants, venture capital or Enterprise Ireland funds.

How does an entrepreneur figure out exactly what size of loan they need in order to get their idea off the ground? He suggests that they base it on their projected cash-flow requirements, and factor in an additional contingency fund of perhaps 20 per cent, in case things don't quite go according to plan.

Kelly explains that start-up businesses are strategically very important for AIB. "They replenish our stock of SMEs [small and medium-sized enterprises]," he explains.

From what AIB's Kelly is seeing on the ground, start-ups are predominantly cropping up in the service sector at the moment.

Another emerging trend is the significant number of loan applications coming in from very specialist, high potential businesses in the life sciences, biopharma and IT sectors, areas which the Government is promoting vigorously. Coffee shops are another firm favourite with those keen to become their own boss, while horticulture businesses are also starting to feature more strongly in the start-up arena. At this time of year, the tourism industry also attracts many budding entrepreneurs, with activities ranging from car and coach hire to providing tours or accommodation, and running language schools.

Loan applications to start manufacturing businesses have become the exception rather than the norm. On the other hand, businesses started by ethnic entrepreneurs who have migrated to Ireland are flourishing, generally in areas such as retail, food and IT.

Although official figures for 2007 have yet to be released, Kelly feels "intuitively" that maturing Special Savings Incentive Account (SSIA) funds provided seed capital for many start-up businesses last year. This was a productive use of SSIAs, he says, as it represented an interest-free source of funds. And because people worked hard to save that lump sum, they are likely to be more careful with it than they might be with outside funding.

Despite the current predictions of economic gloom and doom, Kelly is confident the number of start-ups this year will remain at roughly the same level as in 2007. "The fundamentals of the Irish economy are still relatively strong. Consumers are still spending money."