Short answer
A financing package is a written argument with evidence attached, not a folder of documents. It opens with a one page request stating the amount, purpose, use of funds, repayment source and security. It is followed by a sources and uses table, a normalised earnings schedule, the repayment working, the security position with existing registrations, and then the supporting documents in the order the argument uses them.
The test is simple. Could a credit adjudicator who has never spoken to you price this deal without picking up the phone? If not, the package is not finished.
The one page request
One page, no cover art, no mission statement. Amount, purpose, use of funds, repayment source, security, timing. If it runs to two pages the request is not decided yet.
Sources and uses
| Sources | Amount | Uses | Amount |
|---|---|---|---|
| Senior term facility | $400,000 | Equipment purchase | $460,000 |
| Vendor take back | $100,000 | Installation and commissioning | $38,000 |
| Buyer equity | $50,000 | Working capital on start up | $40,000 |
| Fees and closing costs | $12,000 | ||
| Total | $550,000 | Total | $550,000 |
The numbers above are illustrative. What matters is the shape: every dollar in has a dollar out beside it, and the fees are in the table rather than discovered at closing.
Normalised earnings
Set out reported earnings, then each adjustment on its own line with the evidence for it: owner compensation above or below market, one time legal costs, a related party rent, a discontinued line. An adjustment without evidence is worse than no adjustment, because it makes the credible ones look invented.
How it gets repaid
Show debt service coverage after the new facility, on trailing earnings rather than forecast ones. Then show it again on a downside case: revenue down fifteen percent, margins down two points. A lender is going to build that case anyway. Building it yourself is the strongest single signal in the package.
The security position
- What is offered, and at what value, with the basis for that value.
- What is already registered, in what order, and against what.
- What has to be discharged or postponed, and whether that has been discussed.
- Whether a guarantee is offered, and the net worth behind it.
Answer the objection first
Every file has one thing in it you would rather not bring up. A weak year, a customer concentration, a tax balance, a director who left. Put it in the package with the explanation and the remedy. Raised by you it is context. Found by them it is a risk factor.
Then decide who sees it
Match the file to lenders whose mandate covers the size, the sector and the security. Three well chosen lenders beat twelve. And nothing should leave your hands until you have approved, in writing, exactly who receives it.
Questions
- How long should the package be?
- The argument is five to eight pages. The evidence behind it is as long as it needs to be, indexed so a reader can find any item in seconds.
- Should I include a business plan?
- For an existing business, usually not. A trading history is stronger evidence than a plan. Include one for a start up, an acquisition or a major change of direction.
- Who should write it?
- Someone who has read credit memos. The document is written for an adjudicator, and an owner naturally writes it for a customer.
Where this shows up in practice
- Advisory and deal preparationThe work that happens before a lender sees anything: the request, the evidence, the repayment logic and the lender list.
- Acquisition and buyout financingCapital stacks for buying a business, a franchise, or a partner out, built from bank debt, seller paper and buyer equity.