A financing process that ends after four months without a term sheet costs more than time. The lenders approached have seen the credit application and noted its weaknesses. When the same company comes back eighteen months later, the old note is still on file.
A credit analyst tests every request against three questions. Does the cash flow cover debt service even in a weak year? Can the lender reach that cash flow? And can the company meet its obligations under the loan agreement for the full term? If the answers are in the information package, the analyst can defend the exposure in the credit committee. If they are missing, the analyst runs their own numbers, and more conservatively.
On the bank side I saw both: where figures were missing, sector averages were used, even when the company actually performed better. And where important points were still open, the committee decision was deferred until the answer came in.
That is why the financeability review belongs before the first approach to lenders. The following eight points are where projects most often get stuck in practice.
What the credit analyst tests in the case
1. The plan has no bridge to the track record
The plan shows revenue growth of 12 percent a year and an EBITDA margin rising by 200 bps. Over the last three financial years, revenue grew by 3 percent a year and the margin declined slightly. Once the analyst puts the two series side by side, they build their own bank case, and it sits closer to the history than to the plan.
The plan therefore needs a reconciliation that assigns every percentage point of deviation to a named measure, such as a price adjustment, a change in product mix, a cost programme or a signed contract. Measures that are already working should be backed by actuals. The rest can stay in the plan as ambition, but it does not belong in the sizing.
2. Covenant headroom only holds in the base case
In the plan, EBITDA sits 25 percent above the level at which the leverage covenant breaks. In year two, however, the covenant steps down by 0.5x as scheduled. A 10 percent drop in EBITDA plus some additional working capital is then enough for a breach. The sensitivity analysis had not taken the step-down into account.
With the breaking point in hand, you can negotiate precisely: on stepped covenant levels, an EBITDA definition with clearly defined add-backs, and an equity cure right. In a downturn, these levers are worth more than a few basis points of margin.
3. The contracts run shorter than the loan
A ten-year loan behind a seven-year offtake agreement leaves three years of cash flow without a contractual basis. Framework agreements with key customers that have no minimum volumes and three months’ notice secure even less. What counts in the credit process is how many years of debt service a contract supports.
Before approaching lenders, put all key contracts (offtake, supply, lease, concession, grid connection) with their terms and termination rights next to the target tenor. If a gap remains, it can be closed with a shorter tenor, a cash sweep before the contract ends or a reserve. In project finance, the tail between loan maturity and contract expiry does this job.
Group structure and reporting capability
4. The security position within the group is unclear
Often the loan is meant to sit at the holding company, while earnings are generated in two subsidiaries. One has a minority shareholder, the other a dividend block from a subsidised loan. The new lender would then rank behind all creditors of the operating companies and could only reach the cash flow through distributions it can neither control nor enforce. This structural subordination costs volume, margin or both.
Existing financings add to this. Negative pledges, change-of-control clauses and consent rights of existing lenders can block a new structure until they are refinanced or renegotiated. Before approaching lenders, it should therefore be clear where the cash flow is generated, how much of it may flow upstream, which companies will accede as guarantors and which security has already been granted.
5. Reporting cannot meet the loan agreement’s deadlines
Quarterly figures with a compliance certificate are usually due 45 to 60 days after quarter-end. A company that needs six weeks to close its quarter and consolidates by hand starts the covenant calculation when the deadline has almost passed. The first waiver request then comes from an organisational problem. It costs a fee and some trust, and it does so with the very lender that has just pushed the exposure through internally. Whether the deadlines can be met can be checked before signing and, if necessary, negotiated in the term sheet.
How the process is run
6. The lenders do not fit the ticket
A EUR 15m financing goes to funds with a minimum ticket of EUR 50m, a project with merchant risk to commercial banks that do not underwrite that risk. The rejections come quickly and say little about the project. The lenders and the weeks are used up all the same. Check every name on the longlist against ticket size, instrument, sector focus and risk appetite, ideally from recent conversations. A lender’s risk appetite changes faster than any database can keep up.
7. Lenders are approached without a process
Over several weeks, management talks to one institution after another. Between meetings the figures keep moving, and in the end the banks hold different versions. At the latest, this shows when a bank follows up on a specific figure. From then on, the banks doubt the data, and none of them has a reason to improve its offer.
You only get comparable offers with a single information package, one timeline and the same information for every lender. Then margin, covenants and documentation can be negotiated against each other.
8. The timeline is unrealistic
Signing is planned in six weeks, due diligence has not started and an expert report is missing. Even after due diligence is complete, each lender still needs several weeks for its credit decision. So plan backwards: from financial close via documentation and credit approval to due diligence and the approach to lenders. For a mid-market refinancing, three to six months to signing is realistic; for a complex project financing, six to twelve.
When a process should wait
Sometimes the right call is to postpone the process: when the key contract is still being negotiated, when the grid connection or important permits are missing, when the latest figures have just contradicted the plan, or when the group structure has to be reorganised before the financing. A quarter’s delay then costs less than a rejection that stays on file with every lender approached.
How we prepare the process
For most projects, the eight points can be resolved before the approach to lenders. We work through them with you: we build the bridge from the track record to the plan, calculate where the covenants break, set the contracts against the tenor, sort out security and reporting, check the longlist and plan backwards from financial close. The information package that goes to market then already answers the questions from credit analysis. That shortens the lenders’ review and strengthens your position in the negotiation.