Raising Debt? Here Are The Docs Needed For Your Data Room

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Arc Team

Go-To-Market

As you progress through the debt-raising process, you’ll inevitably have to assemble a comprehensive data room. Lenders use this information, along with other insights gathered throughout the due diligence process to make a “go” or “no-go” decision. Ensuring that your data room is well-curated with all the necessary documents not only instills confidence in your potential lending partners but can also streamline the end-to-end experience. In this guide, we break down each of the common forms of debt financing and the subsequent documents you’ll be expected to produce. Let’s dive in!

An overview of the possible documents lenders may expect you to produce

Beyond the standard financial statements and operational reports, lenders often require access to a diverse range of documents to assess the viability and risks associated with extending credit. This section provides an overview of the miscellaneous documents that they typically request.

  • Profit and Loss Statement: A financial statement that summarizes the revenues, costs, and expenses incurred during a specific period, typically quarterly or annually. Most lenders will ask for a P&L that extends back at least 24 months.
  • Balance Sheet: A financial statement that provides a snapshot of a company's financial position at a specific point in time, usually at the end of a fiscal quarter or year. Most lenders will ask for your balance sheet over the preceding 24 months.
  • Detailed Cap Table: A comprehensive table that outlines the ownership structure of a company, detailing all shareholders' equity ownership stakes, including founders, investors, and employees. Most lenders prefer to see this in a digital format (Carta or Pulley).
  • Overview Deck: A presentation summarizing key aspects of your startup: mission, products or services, market opportunity, competitive landscape, and financial performance.
  • Banking Data: bank statements, transaction histories, and account balances. It provides insights into the company's cash flow, liquidity, and financial transactions.
  • Financial Projections: Forecasts or estimates of future financial performance based on historical performance, market trends, and anticipated changes in business operations.
  • Subscription or Customer Level Metrics (cohorts, retention, ARPU, etc): Metrics that track the performance and behavior of individual customers or subscribers over time. This includes cohort analysis, retention rates, average revenue per user (ARPU), and other key performance indicators (KPIs) relevant to subscription-based businesses.
  • Sales and Ad Data (Shopify, Google, FB): Data related to sales transactions and advertising campaigns conducted through platforms such as Shopify, Google Ads, and Facebook Ads. This may include metrics such as sales revenue, conversion rates, ad impressions, clicks, and customer demographics.
  • A/R Aging: A report that categorizes accounts receivable (A/R) based on the length of time invoices have been outstanding. It helps assess the effectiveness of a company's credit and collections policies by identifying overdue payments and potential liquidity issues.
  • Inventory Aging: A report that categorizes inventory based on how long it has been held in stock. It helps evaluate the efficiency of inventory management practices and identifies obsolete or slow-moving inventory that may require write-downs or liquidation.
  • Valuations (inventory appraisal, equipment value, enterprise value): Assessments of the worth or fair market value of assets, businesses, or securities. This may include inventory appraisals to determine the value of goods on hand, equipment valuations for machinery and other fixed assets, and enterprise valuations to estimate the overall worth of a company.
  • Customer Contracts (MSA, invoice, PO, bill of lading): Legal agreements and documentation related to customer transactions, including master service agreements (MSAs), invoices, purchase orders (POs), and bills of lading. 
  • Equipment PO: Purchase orders or lists detailing the acquisition of equipment, machinery, or other capital assets. It includes information such as the description of items purchased, quantities, prices, delivery dates, and supplier details.
  • Loan Tape: A collection of loan-level data providing detailed information about individual loans within a portfolio. It typically includes loan identifiers, origination and repayment terms, borrower demographics, and performance metrics.
  • Personal Financial Statements: Generally not required, these outline an individual's assets, liabilities, income, and expenses.
  • Debt Schedule: A structured summary of a company's outstanding debt obligations, including principal amounts, interest rates, maturity dates, and repayment terms.
  • Credit Agreements (term sheet, loan agreement): This typically only applies if you have outstanding debt, these are the legal contracts outlining the terms and conditions of a loan or credit facility between you and your lenders.

An overview of term debt and the necessary documents for due diligence

Term debt refers to a type of borrowing arrangement in which a borrower receives a lump sum of money from a lender and agrees to repay it over a specified period, typically in regular installments. Unlike revolving credit facilities such as lines of credit, term debt has a fixed repayment schedule, with set repayment dates and amounts. Examples of term debt include:

  • Term Loans: These are traditional loans where a borrower receives a lump sum amount upfront and repays it over a set term, often ranging from a few years to several decades. For more information check out the founder’s guide to term loans
  • Asset Financing: Loans specifically used to finance the purchase of equipment or machinery are another form of term debt. The equipment serves as collateral for the loan, and repayment terms are structured based on the useful life of the equipment. For more information check out the founder’s guide to asset financing
  • Installment Loans: Debt where borrowers receive a lump sum and repay it over a predetermined period, often with fixed monthly payments.

The required documents for a term debt:

  • 24-Month Profit and Loss Statement P&L (ideally 24 months)
  • 24-Month Balance Sheet
  • Detailed Cap Table
  • Overview Deck
  • Banking Data
  • Financial Projections
  • Subscription or Customer Level Metrics
  • Accounts Receivable Aging Report
  • Outstanding Debt Schedule (if applicable)
  • Credit Agreements (if applicable)

An overview of merchant cash advances and the necessary documents for due diligence

Many traditional A/R, invoice, or working capital-based financiers will not lend against “unearned revenue” and this is exactly where MCA comes into play! A merchant cash advance (MCA) also known as “Revenue-Based Financing” is a financing option where a business receives a lump sum of capital upfront in exchange for a percentage of its future sales. Unlike term loans, MCAs are typically repaid through a fixed percentage of daily credit card sales, making them a form of revenue-based financing. While MCAs can provide quick access to capital without stringent credit requirements, they often come with higher fees and shorter repayment terms. For more information, check out our guide on merchant cash advances.

The required documents for a merchant cash advance (aka “Revenue Financing”): 

  • 24-Month Profit and Loss Statement P&L (ideally 24 months)
  • 24-Month Balance Sheet
  • Detailed Cap Table
  • Overview Deck
  • Banking Data
  • Subscription or Customer Level Metrics
  • Sales and Ad Data (Shopify, Google, Facebook, Tiktok…etc.)

An overview of asset-backed loans and the necessary documents for due diligence

Asset-backed loans are secured by specific assets owned by a startup. Asset-backed loans offer flexibility and can be tailored to meet the unique financing needs of different startups. For more information, check out this guide on asset-backed loans. Examples of asset-backed loans include:

  • Inventory Financing: Inventory financing allows businesses to use their inventory as collateral to secure a loan. Lenders assess the value of the inventory and extend credit based on a percentage of its appraised value. For more information, check out this guide on inventory financing
  • Equipment Loans: Equipment loans enable businesses to finance the purchase of machinery, vehicles, or other equipment needed for operations. The equipment serves as collateral for the loan, reducing the lender's risk and often resulting in more favorable loan terms, such as lower interest rates or longer repayment periods. 
  • Accounts Receivable (A/R) Financing: A/R financing, also known as receivables financing, allows businesses to borrow against outstanding accounts receivable. Lenders apply an advance rate against those assets - typically haircut by 70%-90% of the total collectible value. This provides businesses with immediate cash flow to fund operations or growth initiatives but also provides asset coverage of the loan with a cushion to protect the lender’s financing. For more information, check out this guide on receivables financing.
  • Invoice Factoring: Similar to A/R financing, invoice factoring involves selling outstanding invoices to a third-party financing company, known as a factor, at a discount. The factor advances a percentage of the invoice value upfront and assumes responsibility for collecting payments from customers. For more information, check out this guide on receivables factoring.
  • Warehouse Financing: refers to a credit facility extended to financial institutions, such as banks or non-bank lenders, to support their lending activities. Warehouse financing enables finance companies to originate and hold loans on their balance sheets before selling them to investors in the secondary market.

The required documents for an asset-backed loan (dependent on the type of ABL):

  • 24-Month Profit and Loss Statement P&L (ideally 24 months)
  • 24-Month Balance Sheet
  • Detailed Cap Table
  • Overview Deck
  • Banking Data
  • Revenue Projections
  • Subscription or Customer Level Metrics
  • Accounts Receivable Aging Report
  • Inventory Aging
  • Valuation Report (of the underlying asset)
  • Customer Contracts
  • Loan Tape
  • Outstanding Debt Schedule (if applicable)
  • Credit Agreements (if applicable)

An overview of Merger and acquisition (M&A) financing and the necessary documents for due diligence

Merger and acquisition (M&A) financing refers to the capital raised to fund the acquisition or merger of companies. These transactions involve significant financial commitments and often require specialized financing arrangements tailored to the specific needs and complexities of the deal. M&A financing options include:

  • Senior Debt Financing: Senior debt typically has priority over other forms of debt and equity in terms of repayment and may include term loans, revolving credit facilities, or asset-based loans secured by the assets of the acquiring company or target company. For more information, check out this guide on senior debt financing
  • Mezzanine Financing: Mezzanine financing combines debt and equity components, providing subordinated debt with equity warrants or options. Mezzanine lenders take on higher risks in exchange for potentially higher returns, making this form of financing attractive for acquisitions. For more information, check out this guide on mezzanine financing.
  • Seller Financing: In some cases, the seller of a business may provide financing to the buyer as part of the acquisition deal. Seller financing, also known as vendor financing or owner financing, involves the seller extending credit to the buyer to cover a portion of the purchase price.
  • Bridge Loans: Bridge financing provides short-term funding to bridge the gap between the timing of cash outflows (such as acquisition payments) and cash inflows (such as the sale of assets or equity issuance). Bridge loans are typically used to finance acquisitions quickly while longer-term financing arrangements are finalized or to provide interim financing during the integration process. For more information, check out this guide on bridge loans.
  • Structured Financing: Structured financing involves custom-tailored financing solutions designed to meet the specific needs of complex M&A transactions. These arrangements may include hybrid debt-equity instruments, contingent payment structures, earn-outs, or royalty-based financing, depending on the nature of the transaction and the parties involved. For more information, check out this guide on structured equity financing.

The required documents for M&A financing:

  • 24-Month Profit and Loss Statement P&L (ideally 24 months)
  • 24-Month Balance Sheet
  • Detailed Cap Table
  • Overview Deck
  • Banking Data
  • Revenue Projections
  • Subscription or Customer Level Metrics
  • Valuations
  • Outstanding Debt Schedule (if applicable)
  • Credit Agreements (if applicable)

Other required documents:

  • Proforma sources and uses chart
  • Executed LOI or purchase agreement
  • Proforma PnL and Balance sheet projections
  • Acquisition thesis summary
  • Quality of earnings
  • Comparables report
  • Financials of target entity

An overview of Small Business Association (SBA) loans and the necessary documents for due diligence

Small Business Administration (SBA) loans are government-backed financing options designed to provide affordable funding to small businesses that may have difficulty accessing traditional bank loans. These loans are facilitated by participating lenders, such as banks and credit unions, with the backing of the U.S. Small Business Administration. Here are some examples of SBA loan programs:

  • SBA 7(a) Loan Program: The SBA 7(a) loan program is the agency's primary lending program, offering a variety of loan options to support small businesses' diverse needs. These loans can be used for purposes such as working capital, purchasing equipment or inventory, refinancing debt, or acquiring real estate. SBA 7(a) loans feature longer repayment terms and lower down payment requirements compared to conventional loans, making them an attractive financing option for small businesses.
  • SBA 504 Loan Program: The SBA 504 loan program provides long-term, fixed-rate financing for major fixed assets, such as land, buildings, and equipment. This program is ideal for small businesses looking to purchase or renovate owner-occupied commercial real estate or acquire costly machinery or equipment. SBA 504 loans typically require a lower down payment and offer longer repayment terms, making them an affordable option for capital-intensive projects.
  • SBA Express Loan Program: The SBA Express loan program offers expedited loan processing for small businesses in need of quick access to capital. Express loans provide up to $350,000 in financing and feature streamlined application and approval processes, allowing borrowers to receive funding within a shorter timeframe. These loans can be used for various business purposes, including working capital, inventory purchases, or expansion initiatives.
  • SBA Microloan Program: The SBA Microloan program provides small, short-term loans of up to $50,000 to help startups and small businesses launch or expand their operations. These loans are typically offered through nonprofit intermediary lenders, such as Community Development Financial Institutions (CDFIs) or micro-lending organizations. Microloans can be used for working capital, inventory purchases, equipment acquisition, or other business expenses.

The required documents for SBA loans:

  • 24-Month Profit and Loss Statement P&L (ideally 24 months)
  • 24-Month Balance Sheet
  • Detailed Cap Table
  • Overview Deck
  • Banking Data
  • Revenue Projections
  • Subscription or Customer Level Metrics
  • Customer Contracts (MSA, invoice, PO, bill of lading)
  • Personal Financial Statements
  • Outstanding Debt Schedule (if applicable)
  • Credit Agreements (if applicable)

Wrap-Up - Documents needed for your next data room

While raising debt and getting the necessary documents for a data room, may seem like a daunting task, we hope this guide helps steer you through it! Ultimately lenders just want to understand how your startup is performing and is expected to perform over the next year and beyond to de-risk their loan. By preparing for those conversations ahead of time, you can ensure that you’re set up for success! If you have any questions, or if you’d like our help raising debt, get in touch!

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