How to raise growth debt

Raising growth debt is a financing process, not a single loan application. The company first needs to decide what the debt is meant to achieve, then run a structured lender process that preserves choice until the important commercial points are understood.

A strong process can improve terms and reduce execution risk. A rushed process can leave the company comparing misleading headline prices, entering exclusivity too early or discovering during diligence that the facility does not solve the original funding need.

The process at a glance

1. Define what the debt must do

Start with the business plan, not a lender’s maximum offer. State the use of proceeds, the amount needed, when cash is required and the measurable milestone it should fund.

Useful purposes might include extending runway after an equity round, funding a product launch, financing an acquisition, supporting working capital or investing ahead of contracted growth. Debt is a poor substitute for a missing plan or an emergency equity raise.

Model the facility through final maturity. Include arrangement and legal fees, cash interest, any interest added to the loan, principal repayments and charges on undrawn capital. The amount in the bank will be lower than the headline facility, while the cash outflows can continue for years.

Build a realistic downside. Test slower revenue, delayed customer receipts, lower margins, higher costs, a missed tranche and a later equity round. If the debt works only when every assumption is achieved, change the amount, structure or timing.

Write the financing request in one paragraph:

• the amount and currency;
• the use and timing of each draw;
• the milestone or return expected from the capital;
• the expected and backup repayment sources; and
• the terms that would make the facility unsafe.

2. Decide when to approach the market

Loss-making companies usually have more negotiating power when they still have substantial runway and a credible equity story. Venture debt is often raised soon after an equity round because the cash balance, investor support and valuation have recently been tested.

Later-stage companies may time growth credit around profitability, an acquisition or a refinancing. In every case, allow enough time for lender selection, credit approval, diligence and legal work. The company should not be relying on a closing date that has no room for delay.

Work backwards from when the cash must be available, not when the first lender meeting can happen. Board approvals, specialist reports, security registrations and conditions before drawdown can all extend the timetable.

3. Prepare the borrower materials

The lender needs a clear credit case: why the company is attractive, why it needs debt, how the loan is repaid and what protects the lender if performance weakens.

Prepare a short lender presentation, an integrated financial model and a controlled data room. Integrated means the profit and loss statement, balance sheet and cash flow statement connect, so a change in an operating assumption flows through to cash and debt payments.

The model should show monthly actuals and forecasts, the proposed facility, base and downside cases, the lowest cash balance and covenant headroom. Covenant headroom is the gap between forecast performance and the minimum required by the loan.

Reconcile important measures before outreach. Annual recurring revenue, or ARR, should connect to contracts, billing and accounts. EBITDA, meaning earnings before interest, tax, depreciation and amortisation, should connect to the profit and loss statement. Cash should connect to the balance sheet and bank records.

Use one set of numbers across the presentation, model and data room. A polished deck does not compensate for conflicting definitions or forecasts.

4. Build a focused lender list

Do not send the opportunity to every lender. Match providers to the company’s geography, sector, stage, ownership, profitability, required amount, security available and desired structure.

Check the lender’s minimum and maximum ticket, whether it funds loss-making companies, its ability to provide later tranches and whether decisions are made from its own balance sheet or a fund with specific restrictions.

References matter. Speak with borrowers that have performed well and borrowers that have needed an amendment. Ask how quickly the lender makes decisions, how it behaves when forecasts are missed and who controls waivers or restructurings.

A debt adviser can help map the market and manage a competitive process, particularly for larger or complex transactions. The company should still understand the advice, economics and lender relationship itself.

5. Run initial lender conversations

The first meeting should test fit before the company releases its most sensitive information. Explain the business, financing need, repayment logic and principal risks. Ask the lender to describe its process, decision makers, expected timetable and usual documentation.

Useful early questions include:

• Does the opportunity fit your current mandate?
• What information is required for an indicative proposal?
• Which credit committee approvals remain after a term sheet?
• Are later tranches committed, or subject to further approval?
• What security, covenants, fees and equity participation do you normally expect?
• Which diligence costs are paid by the borrower?

Keep a written process log. Record information shared, questions outstanding, expected proposal dates and each lender’s apparent concerns. This prevents contradictory answers and makes follow-up more efficient.

6. Ask for comparable proposals

Give serious lenders the same core information and a clear deadline. Request written proposals that cover facility amount, tranches, availability, maturity, repayment, interest, fees, security, covenants, reporting, early repayment, warrants or other equity participation and conditions to closing.

A tranche is a portion of the facility made available separately. An availability period is the time during which it can be drawn. A large headline facility may be worth less than a smaller committed offer if later tranches depend on lender discretion or difficult milestones.

Compare total cash cost and control, not only the interest margin. Fees, warrants, minimum interest, early repayment charges, covenant restrictions and mandatory cash balances can change the economic result.

Separate terms into three groups: must have, negotiable and unacceptable. Decide these before the strongest-looking lender creates momentum around its own structure.

7. Negotiate and select a term sheet

A term sheet summarises the main commercial terms intended to form the basis of detailed legal documents. Much of it may be non-binding, but confidentiality, costs and exclusivity provisions can be binding. The company should take legal advice before signing.

Exclusivity prevents the borrower from pursuing competing transactions for an agreed period. It gives the selected lender time to complete work, but it removes competitive leverage. Do not grant it until the main economics, covenants, security, diligence scope and approval status are sufficiently clear.

Check what remains conditional. A term sheet may still be subject to credit committee approval, satisfactory due diligence, legal documentation, no material adverse change and other conditions. The more open conditions remain, the less certain the transaction.

Select the lender as well as the loan. The relationship can continue through reporting, amendments, further draws and difficult periods. Certainty, responsiveness and behaviour may justify choosing an offer that is not the cheapest on one measure.

8. Complete due diligence

Due diligence is the detailed verification of the company and the proposed credit case. It commonly covers financial, commercial, legal, tax, corporate, customer, technology, regulatory and insurance matters, with scope depending on the business and transaction.

Keep one person responsible for the question log and one approved source for each number. Answer clearly, provide the supporting document and flag changes promptly. Concealing a weakness is more damaging than explaining it with evidence and a mitigation plan.

Lender diligence often refines the terms. If revenue quality, forecasts or legal risks differ from the original case, the lender may reduce the amount, change pricing, add conditions or withdraw. The company should keep enough liquidity and alternative options to manage that possibility.

Management meetings are part of diligence. The lender will test whether the team understands performance, owns the risks and can explain the downside without relying on advisers for every answer.

9. Negotiate the legal documents

The facility agreement contains the binding loan terms. Security documents give the lender rights over agreed assets. Other documents may include guarantees, intercreditor arrangements, board and shareholder approvals, fee letters and warrant documents.

Commercial points can change meaning in legal drafting. Review definitions, calculation periods, cure rights, baskets, thresholds, reporting deadlines, events of default, draw conditions and amendment powers with experienced counsel.

A covenant is a promise or financial condition the borrower must meet. An event of default is a specified event that can give the lender enforcement rights. A cure is a contractual way to fix certain breaches within an agreed time or by an agreed action.

Build a closing checklist with owners and dates. Confirm the final sources and uses of funds, fees, bank details, security filings, corporate approvals and every condition that must be satisfied before the first draw.

10. Close, draw and prepare to report

Closing means the documents have been signed and the conditions for the transaction have been satisfied or waived. It does not always mean all money is immediately available. Check the separate requirements and deadline for each draw.

Before taking the money, update the operating forecast with the final terms. Confirm payment dates, reporting deadlines, covenant tests, notice requirements and the internal owner of the lender relationship.

Create a compliance calendar and a lender reporting pack while the transaction is fresh. The first report should not be the moment the finance team discovers how a covenant is calculated.

Common process mistakes

• Starting too late, before the company has a credible downside plan.
• Optimising for the largest headline facility or lowest margin.
• Sharing inconsistent figures with different lenders.
• Treating conditional tranches as committed cash.
• Signing exclusivity before understanding remaining approvals.
• Underestimating diligence, legal fees and management time.
• Letting cash runway fall so far that the company cannot walk away.

The bottom line

A good growth debt process starts with a precise funding need and a realistic repayment plan. It creates competition among suitable lenders, compares complete terms and preserves enough time and liquidity to handle diligence and negotiation.

Venture debt and growth credit differ in what lenders emphasise, but the raising process follows the same logic: prepare the evidence, test lender fit, negotiate the full package, verify it through diligence and translate it carefully into binding documents.

The objective is not simply to close. It is to close a facility that remains useful when the company’s actual performance is less tidy than the presentation.

Where to go next

• Preparing a growth debt data room shows what to prepare and how to organise lender information.
• Growth debt due diligence explains what lenders verify and how to prepare for scrutiny.
• Choosing a growth lender helps compare lender fit, behaviour and decision making.
• Comparing growth debt term sheets provides a like-for-like framework for evaluating offers.