Choosing a growth lender

The cheapest growth debt offer is not always the best facility. A lender becomes a long-term contractual counterparty with information rights, consent rights and remedies if the company misses its obligations.

Choose the lender whose capital, structure and behaviour fit the company's plan and downside, then compare the full economics.

Start with fit

Each lender operates within a mandate: the types of company, sector, geography, stage, loan size and risk it is prepared to finance. A strong name is not useful if the opportunity sits outside that mandate.

Ask how the lender views the business today and what would make it more or less attractive over the facility term. The answer reveals whether the credit case depends on revenue, investor support, collateral, profitability, a future transaction or a combination.

A specialist lender may understand the company's sector and metrics quickly. A broader lender may offer more products or geographic reach. Neither is automatically better; the value depends on the company's needs.

The comparison framework

Understand the lender's capital

Growth debt may come from a bank balance sheet, a private credit fund or another financing vehicle. The legal lender may also arrange participation by other institutions.

Ask where the money comes from, who approves the loan, who controls amendments and whether the lender expects to hold the exposure. Different funding models can affect pricing, concentration limits, decision-making and follow-on capacity.

Do not infer certainty from the lender type. Obtain the specific approval status, remaining conditions and legal commitment for the proposed facility.

Capital certainty

Capital certainty is the likelihood that the agreed money will be available in the required amount and on time. Test it at signing, at each draw and over the full availability period.

Ask which committees have approved the deal, which points remain open, whether any amount depends on syndication or third-party funding, and which tranches remain discretionary.

An accordion is an option to request an increase in the facility. It is usually not committed capital unless a lender is already legally obliged to provide it. Do not include a discretionary accordion in the core runway plan.

Review every milestone, no-default test and condition precedent. A large commitment divided into uncertain tranches can provide less dependable liquidity than a smaller unconditional facility.

Compare total cost

The interest rate is only one line. Compare arrangement fees, commitment fees, monitoring charges, legal costs, exit fees, prepayment premiums and warrants.

A warrant gives the lender a right to acquire shares on agreed terms. Its future value is uncertain, so show it separately from cash costs rather than forcing it into a single precise number.

Model cost under realistic scenarios: early draw, late draw, partial draw, full draw, early repayment and maturity. Two term sheets can change order when the actual draw and repayment plan is applied.

Structure and runway

Map the monthly cash effect of the interest-only period, principal amortisation and final maturity. Check whether later tranches receive their own repayment periods.

Assess covenants under the base case and downside. A lower rate can be poor value if tight liquidity or performance tests create an early renegotiation risk.

Review security, guarantees, bank-account requirements, permitted debt and restrictions on acquisitions, asset sales, distributions and intellectual property. The practical question is whether the company can execute its strategy without repeated consent.

Flexibility is specific

A lender described as flexible may still have firm limits. Convert general statements into examples and document terms.

• Which business changes are permitted without consent?
• How much headroom is built into financial covenants?
• Can the company raise equity, incur equipment finance or use receivables funding?
• What cure, waiver and amendment routes exist if performance is weaker than plan?
• Can assets or subsidiaries be acquired, sold or reorganised?
• What happens to undrawn tranches after a minor breach or delayed milestone?

Reputation and behaviour

References are part of lender due diligence. Speak to borrowers at a similar stage and, where possible, companies that missed plan, sought an amendment or refinanced.

Ask the lender to select references, then use investors, advisers and peers to find independent ones. A relationship that feels helpful during a competitive sales process may operate differently once the documents are signed.

Focus on observed behaviour rather than labels. Did the lender communicate decisions clearly? Did critical terms change late? Who handled problems? How long did approvals take? Were fees and information requests predictable?

Questions for reference calls

1. 1Did the final documents remain consistent with the signed term sheet?
2. 2Was funding available when and in the amount expected?
3. 3How did the lender behave when the company missed budget or needed consent?
4. 4Who made amendment decisions, and how quickly?
5. 5Were reporting, banking and legal requirements proportionate?
6. 6Did the lender support a follow-on, refinance or exit?
7. 7What would the borrower negotiate differently next time?

Sector and stage expertise

Relevant experience can improve diligence, covenant design and communication. A lender familiar with subscription software, life sciences, marketplaces or hardware may understand that sector's cash cycles and milestones.

Expertise should still be tested. Ask which comparable companies the team has financed, which metrics it uses, where those loans performed differently from plan and who will manage the relationship after closing.

Avoid assuming that a sector logo list means the proposed team has direct experience. Meet the portfolio or relationship manager, not only the origination team.

Follow-on capacity

The company may later want an extra tranche, acquisition facility, revolver, extension or refinance. Ask what products and amounts the lender could consider as the company grows.

Capacity is not commitment. It can change with fund life, portfolio concentration, regulation, lender performance and the company's credit quality. Treat it as a useful option, not guaranteed runway.

Also ask whether future support would require bringing in other lenders and how an intercreditor arrangement would affect decisions.

Speed and execution risk

A fast indicative offer does not guarantee a fast closing. Ask for the remaining diligence, credit, legal, security and know-your-customer steps, with owners and target dates.

Term drift occurs when important economics or protections change as the process moves from term sheet to final documents. Some refinement is normal as diligence progresses, but repeated unexplained changes are a warning.

Keep alternatives active until the preferred lender has completed the approvals that matter. Exclusivity can reduce leverage, so understand its length, scope and exit rights before signing.

Operating fit

A bank lender may require operating accounts, deposits or treasury products. A fund lender may have different reporting, payment and agency arrangements. Price the operational change as well as the loan.

Check currencies, payment systems, hedging needs, account control, international coverage and support hours. Small practical constraints can matter when the company has global payroll, customers or subsidiaries.

Understand the ongoing reporting pack and frequency. The best fit is a lender whose information needs can be met reliably from the company's existing finance process.

A simple scorecard

Create a weighted scorecard before final negotiation. For example, a company with twelve months of runway may weight capital certainty and speed more heavily than small pricing differences. A company expecting acquisitions may prioritise permitted-acquisition capacity and follow-on funding.

Use the scorecard to expose trade-offs, not to replace judgement. A critical failure, such as uncertain funding for an essential amount, should not be hidden by a high average score.

Red flags

• Critical terms change repeatedly without new information.
• The lender will not explain its approval status or funding source.
• Later tranches are presented as committed but remain discretionary.
• Reference borrowers only describe smooth cases and no downside experience is available.
• The relationship manager has little authority and decision-makers are inaccessible.
• The headline rate is attractive but prepayment, warrant or fee terms are unclear.
• Covenants leave little headroom against the company's own downside case.

The bottom line

Choose a growth lender by comparing dependable capital, total cost, structure, flexibility and behaviour over the whole life of the facility.

The right lender is not the one with the best sales pitch or lowest margin. It is the counterparty whose documented terms and demonstrated decisions still work when the company grows differently from plan.

Where to go next

• Who provides growth debt? maps the provider types and their different incentives.
• Comparing growth debt term sheets provides a like-for-like framework for evaluating offers.
• Negotiating a growth debt facility explains where borrowers have leverage and how to trade terms.
• Growth debt term sheets explained shows how to read the whole offer before long-form documents.