Navigating the Debt Raising Process

Now that you’ve laid the groundwork, it’s time to tap the debt market and kick off the raise. This stage involves finding the right lenders and running a competitive fundraising process which includes prepping your materials to market the debt opportunity in the best light, capital planning through a variety of debt structures, and, ideally, ending up with one or more term sheets. Identifying the right lenders: banks vs. credit funds & alternative lenders

Exploring the lender universe is like stepping into a gelato shop: you’ll be faced with an almost overwhelming variety of options, and it’s up to you to build the ideal flavor profile. Your goal is to target lenders whose credit solutions and risk appetite match your company profile and capital needs. Some options you may consider include:
 

• Traditional banks: Offer the lowest rates but have stricter ongoing operating requirements. Banks prefer stable borrower profiles like companies with steady cash flow, adequate collateral, and oftentimes a tying requirement to solidify a banking relationship. These are typically for profitable middle-market businesses. Venture-backed startups may qualify for bank venture debt if they have credible investors, though the process may be slower and more opaque than others.
• Credit funds and private lenders: Additional flexibility is granted by a more aggressive lending appetite in exchange for wider pricing. They’re willing to solve for earlier stage and more complex borrower profiles through tailored structuring and higher rates. The underwriting process with a fund can be a bit more like an investor conversation; they’ll dig into your business model and growth plans. If you’re a venture-backed startup, you will likely engage with these funds as prime candidates for venture debt or working capital facilities. These are seasoned credit investors who take a holistic view of the business and its future growth plans.
• Specialty finance and alternative lenders: Include embedded lenders, factoring firms, or lenders that can collateralize cash-flowing receivable assets to bridge a funding gap for a specific need (e.g., litigation finance, esoteric asset advances, lender finance, etc.). If you have a strong track record of performing receivables, there are fintechs and alternative financing providers that specialize in invoice factoring or revenue-based financing (RBF). These firms can underwrite the fastest but are oftentimes pricier. You should only choose a short-term or niche partner if it aligns with your business model.
   

You can start by talking to other entrepreneurs or finance leaders in your industry to find out who they have raised debt from and how the experience was. Often, venture investors can also recommend lender contacts they’ve worked with. However, direct outreach can be time-consuming, as it often requires extensive searching, screening, and communication. 

On the other hand, brokered outreach streamlines your search process but can come with fees, less control, and potential misalignment of goals. 

Arc’s credit matchmaking and Capital Markets platform offers a balanced alternative by providing access to a curated pool of vetted lenders hand-selected by our team of in-house credit experts. It combines the flexibility of direct outreach with the convenience of a brokered solution, reducing overhead while preserving control and quality. 

Preparing a compelling pitch for lenders

Approaching a lender is in many ways different from pitching equity investors, but you still need to “sell” them your company. While raising debt capital, you’re advocating for the stability and creditworthiness of your business. A compelling lender pitch demonstrates that your business is a good bet financially solid (or on a clear path to be), well-managed, and low risk from a repayment standpoint.

Here are elements to prepare for your pitch:
 

• A clear story of your business: Succinctly explain your product, revenue model, customers, and why you’re raising debt now. It’s important to highlight growth catalysts in the business and how additional debt capital will fuel those initiatives.
• Highlight strengths and address weaknesses: Emphasize contracts, recurring revenue, or financial targets any positive signs that could reduce the perceived risk to the lender. At the same time, proactively acknowledge any obvious risks with a mitigant. For instance, “We are not yet profitable, which is common for our stage, but we have a clear line of sight to profitability by Q4 next year as our recent cohort of customers scales up. 
• Focus on the capitalization journey: Demonstrate the company’s fundraising path for both debt and equity. Explain the drivers that will bridge the gap to the next priced round and how you intend to repay the loan or scale up with a larger credit facility through prudent growth.
• Be prepared to talk numbers: Know your numbers off the top of your head revenue, expenses, gross margin, burn rate, cash balance and have an explanation for any oddities. With lenders, credibility is everything. So avoid glossing over any apparent risk factor; instead, address it and explain what you learned or how you mitigated it. Lenders appreciate transparency, and if they catch you in an inconsistency, it could damage your relationship or kill the deal.
• The human element your character: This is often overlooked by prospective borrowers, but the lender is often also assessing you as a founder or executive. They might not say it explicitly, but things like your responsiveness, honesty, and understanding of your business will factor into their decision. So, present yourself professionally. Be prompt in communication and have organized information. If a lender knows you run a tight ship, they’ll feel safer lending to you. 
• Presentation materials: This could include a company overview, key financials and projections, use of funds, management team bios, and any other relevant info (like key customers or partnerships, if they add credibility). You’ll also want to prepare a detailed financial model with forward assumptions that you can speak to in due diligence. 

In short, you want to tell a story that clearly indicates your readiness to service debt consistently and responsibly.