Preparing for a lender process
The data room, the model, and the four questions every credit committee will ask. Two weeks of preparation is worth more than any single negotiation.
In brief
- Run four to six lenders in parallel. One term sheet is not a process.
- Have your lead investor's downside answer agreed before you start, not during.
- A cohort retention chart answers more questions than any slide about the market.
Lenders decide quickly and then spend six weeks confirming the decision. Preparation is about the first meeting, not the diligence.
What goes in the data room
- Three years of statutory accounts and the current year to date, monthly.
- A revenue build by customer and contract, with start and end dates.
- Cohort retention, gross and net, by acquisition month.
- The cap table, and the last two rounds' documents.
- A model with a base case and a downside, and the covenant headroom in both.
The four questions
Every credit committee asks the same four, in some form. Have the answers written down before the first call.
- How much of your revenue is contracted twelve months out?
- What does your largest customer represent, and what is the notice period?
- What will your lead investor do if you miss plan by 25%?
- What is the money for, and what does it buy that you cannot fund from operations?
Running it in parallel
Four to six lenders, same materials, same week. Fewer than four and you have no comparison and no leverage; more than six and the diligence load starts to damage the answers. Tell each of them you are running a process. They will assume it anyway, and saying so sets the pace.
The gap between one term sheet and four is worth more than every clause you will argue about afterwards.
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Next in Running a process
What lenders actually diligence
Six weeks of questions, and what each is really testing.
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