Managing growth debt after closing

Once growth debt closes, the job changes. The company has the cash, or the right to draw it later, but it also has a set of promises to keep. These can include payment dates, financial reports, limits on certain decisions and tests linked to cash, revenue or other business measures.

You do not need to become a debt lawyer to manage the facility well. You do need a simple system that shows what is due, who owns it and what could become a problem. The aim is to spot pressure early enough to have choices, rather than discover it when a deadline has already passed.

Start with one control sheet

The signed loan documents are the source of truth, but they are not a useful day-to-day checklist. Soon after closing, turn them into one control sheet that the finance team can actually keep on top of.

At a minimum, record:

• every interest and repayment date, with the expected amount or calculation method;
• the dates when the company may ask to draw more of the facility;
• what must be delivered to the lender, by when and in what form;
• each financial test, how it is calculated and when it is tested;
• decisions that need the lender’s consent before the company acts;
• events that must be reported quickly, such as litigation, a missed payment or a material change to the business; and
• the internal owner and reviewer for every item.

Add reminders with enough lead time to prepare and review the work. A deadline on Friday is not useful if the board, accountants or lawyers need to approve something first.

Know what needs attention and when

Not every obligation runs on the same timetable. A simple rhythm makes the facility easier to manage and reduces the risk that an unusual event falls between teams.

Decide carefully when to draw

Many facilities are available in stages rather than paid in full on day one. A drawdown is simply the act of asking the lender to release some of the agreed loan. The right to draw may expire on a fixed date or depend on the company meeting agreed milestones.

Treat each available amount as an option, not as cash already owned. Keep a short checklist of the notice period, evidence, board approval and other conditions needed. Recheck these well before the company expects to use the money.

Drawing earlier can provide certainty, but it also starts interest and may start the repayment clock. Drawing later can reduce cost, but creates the risk that the window closes or a condition is no longer met. The right answer depends on the company’s cash plan and the exact facility terms.

Put the full repayment schedule into the cash forecast

Growth debt can feel inexpensive during an initial period when only interest is paid. The cash impact changes when principal repayments begin. Principal is the amount originally borrowed. Some loans repay it in monthly instalments; others leave a larger amount due at the end.

Build the lender’s schedule into the company’s main cash forecast, then check it against lender statements. Include interest, principal, arrangement or monitoring fees and any final payment. If the interest rate can move, model a reasonable increase rather than assuming today’s rate stays unchanged.

Run at least three views: the current plan, a slower growth case and a delayed fundraising case. The important question is not only whether the next payment can be made. It is whether debt payments leave enough cash to run the company and reach the next funding or profitability milestone.

Make lender reporting repeatable

Lenders commonly ask for management accounts, cash information, budgets and updates on business performance. Some agreements also require a compliance certificate: a formal statement confirming the company’s calculations and whether it has kept the promises in the loan agreement.

Use one reporting pack that is refreshed each period. It should draw from the same numbers used by management and the board. Add a short explanation of what changed against plan, why it changed and what management is doing about it.

Before sending anything, check that:

• the reporting period and deadline are correct;
• the accounts, cash forecast and performance measures agree with each other;
• any financial test uses the definition in the loan agreement, not a convenient internal version;
• the narrative explains material changes without hiding bad news; and
• someone with the right authority has reviewed and signed any certificate.

Keep evidence of delivery and the final version sent. This creates a clear record and prevents the team from rebuilding the process every quarter.

Track the room before a financial test is broken

A financial covenant is a measurable promise in the loan agreement. It might require the company to keep cash above a minimum level, reach a revenue target or stay within another agreed measure. Headroom means the amount of room between the forecast result and the point at which that promise would be broken.

Passing the test today is not enough. Forecast the lowest expected headroom over the next 12 months, or for as long as the company’s normal planning horizon allows. Then repeat the calculation using a downside case. This shows whether the result depends on an equity round arriving on time, a large customer signing or costs falling exactly as planned.

The same habit applies to non-financial restrictions. Keep track of how much freedom remains to take on other debt, grant security, sell assets or make payments to shareholders. The documents may allow some activity up to an agreed limit, but those limits can be used up over time.

Check the loan before major company decisions

Loan agreements often restrict actions that could weaken the lender’s position. These are sometimes called negative covenants. In plain English, they are decisions the company has promised not to take unless an exception applies or the lender agrees.

Make a lender check part of the approval process for:

• taking on new borrowing or granting security over company assets;
• buying or selling a business or important assets;
• moving cash or assets around the group;
• paying dividends, buying back shares or making other shareholder payments;
• changing the nature of the business; and
• settling major litigation or making another unusual commitment.

Do this before the company signs a contract or announces the decision. A lender may be willing to consent, but it needs time and information. An informal conversation is not a substitute for the written approval required by the agreement.

Keep the lender informed before there is a crisis

A useful lender relationship is built through accurate, timely updates. The lender does not need a running commentary on every operational change, but material surprises damage trust.

Agree who speaks for the company and keep messages consistent. When performance is below plan, explain the cause, the cash impact and the action being taken. Do not send a positive narrative that conflicts with the numbers in the reporting pack.

Act early when the forecast worsens

If cash runway shortens or a financial test looks tight, first make sure the calculation is correct. Check the loan agreement’s definitions and confirm that actual results and forecasts use the same basis. Then move quickly.

1. 1Bring the CFO, CEO and relevant board members onto one fact base.
2. 2Work out when the pressure appears, how large it is and which assumptions drive it.
3. 3Identify practical responses, such as reducing spending, changing the timing of a draw, raising equity or refinancing.
4. 4Check whether the agreement requires the company to notify the lender now.
5. 5Take legal and financial advice, then approach the lender with a clear explanation and proposal where appropriate.

Three terms often appear at this stage. A consent gives permission for a particular action. A waiver means the lender agrees not to enforce a particular breach or requirement, usually on stated conditions. An amendment changes the loan agreement itself. These are not interchangeable, and the commercial discussion should be documented in the form the agreement requires.

Start planning repayment before maturity

Refinancing means replacing the existing loan with a new one. It takes time to prepare information, approach lenders, negotiate terms, complete due diligence and sign documents. Waiting until the final months can leave the company negotiating with little choice.

Begin with the business plan. Ask whether the company expects to repay from cash generation, an equity round, a sale or another debt facility. Check whether that plan still matches the loan’s maturity and repayment schedule.

Keep the information a new lender will need in good order: historic accounts, current management information, a credible forecast, cap table, debt schedule, customer concentration and an explanation of performance against the original plan. Good records make both refinancing and lender discussions easier.

If refinancing depends on the next equity round, model a delay. Venture debt often relies in practice on the company retaining access to equity funding, so a missed or smaller round can affect both repayment and negotiating leverage.

A monthly management checklist

1. 1Reconcile interest, fees and repayments to the lender’s statement.
2. 2Update the cash forecast for every remaining debt payment.
3. 3Refresh the forecast for each financial test and record the available room.
4. 4Review upcoming reporting, draw and notice deadlines.
5. 5Check whether proposed board decisions need lender consent.
6. 6Update the lender pack and explain material changes against plan.
7. 7Escalate any amber or red issue with a named owner and deadline.
8. 8Review the likely repayment or refinancing route and the time left to deliver it.

The bottom line

Managing growth debt after closing is mainly a discipline of dates, cash and communication. Put the signed obligations into a simple operating system, forecast the pressure points and check the agreement before important decisions.

The technical detail still matters, especially when calculating a financial test or asking for a waiver. But the founder-level rule is straightforward: know what the company promised, make one person responsible for each promise and raise problems while there are still several ways to solve them.

Where to go next

• Reporting to growth lenders shows what lenders expect to receive after closing.
• What happens if you breach a debt covenant? explains the response to a failed covenant test.
• Refinancing growth debt examines when replacing the facility can improve the structure.
• Raising equity with debt outstanding explains how outstanding debt affects a later equity round.