What lenders actually diligence
Six weeks of questions, and what each one is really testing.
Diligence looks like an accounting exercise and is really an exercise in finding the one thing that breaks the credit. Most questions are a route to one of four concerns.
Is the revenue what you say it is
Expect a contract-by-contract reconciliation from your reported ARR down to signed, invoiced and collected. Where those three diverge is the first thing a credit analyst looks for, and a large gap between invoiced and collected reads as a collections problem regardless of what your accounts say.
Does it stay
Cohort retention, by month, gross and net. A lender is lending against next year's revenue, and last year's churn is the only evidence available about it.
Who stands behind you
The sponsor question, asked directly of your investors. A lender will usually call your lead, and the answer materially changes the terms. An investor who says they would support a bridge in a downside is worth more to your pricing than a percentage point of growth.
Can you run a facility
Whether your finance function can produce monthly accounts on time, every time. Facilities carry reporting obligations, and a company that closes its month in three weeks will breach an information covenant within the year. This is assessed informally, by how quickly and cleanly you answer everything else.
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How credit funds are funded
Your lender has investors too. It shows up in your terms.
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