Getting finance ready for lenders and investors

A lender usually wants a package built from reviewed numbers: the last two to three years of tax returns, year-to-date and prior-year financial statements, a debt schedule, aging reports for receivables and payables, bank statements, and a summary of what the money is for. Many also want a personal financial statement from owners.

Prepare the package before you apply. It shows that the books are in order, and it gives you the chance to fix problems first.

A finance data room for a financing includes formation documents, the cap table and stock ledger, financial statements and a trial balance, bank reconciliations, a monthly revenue schedule, payroll and contractor records, tax filings, and key contracts. Organize it in folders with dates and clear names, and keep an index.

Reviewers look for consistency. The cap table should match the legal records, the revenue should match the bank, and the story in the model should match the books.

On closing day, finance has work to do. Record the cash received and the equity or note issued. Update the cap table. File any required notices. Track the use of proceeds against the plan, and set up the board reporting the new investors expect. Update the forecast for the new cash.

Loans often include covenants, which are conditions such as a minimum debt service coverage ratio, a minimum cash balance, or limits on additional debt. Build the calculation into the monthly close so you see a breach coming. A covenant tracker with the formula, the threshold, the current value, and the date it is tested takes an hour to build and can save a default.

A monthly finance meeting should look at the close, not read it. Cover cash and runway, the biggest variances from plan, items needing a decision, and the forecast. End with owners and dates. Send the numbers ahead of time so the hour is spent on choices.