A Framework for Understanding Loan Repayment

Let’s state something up front: securing a business loan is tough and getting through the lender diligence process can feel daunting because of the large data requests that can overwhelm even the most organized CEOs. But here’s the secret: not every document carries the same weight.  Some diligence files matter a lot more than others. That’s why you need an experienced advisor like Accrefi to navigate you pass the diligence jungle.

A good framework to think about how a lender makes a yes/no decision is that they look to aggregate repayment protection across these 5 pillars:

1. Collateral

Collateral includes both hard collateral (inventory, equipment, plant, property, and real estate) and soft collateral (receivables, purchase orders) .

2. Revenue

Not just any revenues, but specifically high-quality revenues that are recurring or reoccurring.  If a company can demonstrate it has a strong ability to repeat its revenue year after year, that bodes well for obtaining a loan.

3. Cash flow   

EBITDA or profits are the resulting cash flow from a business that has successfully managed its costs in a manner so as to not exceed the revenue brought in.  It signals financial competence and a strong fundamental business operation.

4. Equity support

Debt cannot support a company on its own.  Hence, a borrower will need to have a sufficient amount of equity cushion, either from external capital raised or through retained earnings. 

5. All other

This includes all other credit protection mechanisms like personal guarantees, the parent company’s balance sheet, trade credit insurance, etc.

A company has to have some combination of the above to meet the threshold of confidence a lender needs before issuing a loan. When a borrower lacks sufficiency in one bucket, it must compensate by producing extra support in the other categories.  Moreover, different companies in different industries will be subject to different underwriting guidelines.  A lender to a factory cares about collateral and revenue whereas a lender to a services business looks at cash flow.  This framework will be helpful in guiding the way you think about the files or questions ask about your business. 

The Types of Financing Accrefi Supports

One of Accrefi’s strengths is the sheer variety of financing structures we can help you access.  Depending on your business’s financial health, growth stage, and goals, you might be eligible for:

· Asset Based Loans (ABL): Loans secured by liquid or illiquid assets when cash-flow is insufficient or inconsistent.   

· Cash Flow Loans: For businesses with stable profit or EBITDA, these are loans sized as a multiple of the company’s adjusted EBITDA. 

·  Mezzanine Loans: A cousin of the cash flow loan for companies looking to increase debt capacity beyond traditional cash flow limits.

·  Revenue Based Financing (RBF): For businesses with recurring revenue, this financing instrument ties repayment to future sales rather than fixed monthly payments.

·  Acquisition Loans: Acquisition loans are bespoke lending structures geared towards helping an acquiror close a transaction and integrate the target business.   

This diversity ensures that businesses of varying character, whether asset-intensive, growth-stage, or revenue-driven, can find a financing solution tailored to their needs.

What Documents Do I Need

Below are the major categories of diligence documents lenders will analyse in order to make a determination on whether a company is fundable.  For the entire list, please see this link.  It’s important to keep in mind one lenders’ criteria may different dramatically than another, even when looking at the same set of information. 

A. Business overview and organization

·  Business Presentation.  This is the most basic request all lenders will want a high-level understanding of the business model and what it does.  Rather than a customer pitch, the presentation should be able to explain what the service or product is, how the business makes money, what are the primary costs, the industry landscape, and what the business’s competitive advantages are.  In other words, your audience is a potential investor, not a potential customer.

·  Org Chart.  An organization chart outlining the employees and their roles, as well as how the business is organized into units will also be helpful.

B. Customers and suppliers

While the exact form and format that a lender will want to see varies, most lenders will require something to the tune of the analyses described below. 

·  List of Customers.  Initially, these lists can be anonymized if the names are sensitive.  Lenders needs to see what the revenue by customer is to identify concentration pockets, and revenue breakout by vertical, product type, or other groupings.  Ideally the customer file is a CSV format that shows how much was earned by each customer for the last several years, so that a retention analysis can be performed with the underlying data.

·  List of Suppliers.  A list of major suppliers or vendors to the company.  Any supply dependencies or minimum purchase guarantees will need to be called out.  Any unpaid vendors with large outstanding balances will also need to identified and addressed.

C. Financial Statements

See Section 3 of our document request list which lists out the internal prepared financial statements lenders would like to see.  Companies that do not have all the requested items need not worry.  It is still possible to get a term sheet with a subset of the documents.

Internal Statements

For a revenue based or asset based loan, the following two types of files are sufficient for the first steps:

·  AR and AP Agings 

·  Income Statement

For cash flow lenders they will also need the following to get comfortable with the company’s ability to manage its debt leverage and cash flow:

·  Balance sheet

·  Cash flow statement

The time period covered varies but generally lenders are looking for year to date + at least the last two fiscal years. For AR and AP agings, the last 6-12 months is sufficient. 

Third Party Reports

·  The Quality of Earnings (QoE).  The underwriting process for a cash flow term loan debt differs fundamentally from an asset based or revenue based loan.  Cash flow term loans are often the playground of SBIC or mezzanine lenders.  These lenders rely entirely on the sustainable cash flow and enterprise value of your business.  Their recovery depends on selling the company as a going concern, not liquidating assets.

Audited financials are great, but not enough. An audit is retrospective, confirming that historical statements comply with GAAP.  An audit ultimately tells its reader “Did this company apply appropriate accounting principles in its financial reporting?”

A QoE report is different.  It is forward-looking and tells the lender what the adjusted EBITDA is.  The report answers: “What is the normalized EBITDA of this business and the resulting cash flows after working capital that can be relied on an ongoing basis?”

· Audited Financials.  Majority of lenders in the midmarket do not require audited financials to underwrite a loan.  The QoE tells a lender more information than audited financials beyond the attestation of sound accounting principles.  At a certain size threshold, however, having audited or reviewed financial statements may be a reporting requirement after the closing.  

Tax returns

·  Except for SBA loans, tax returns are not looked at for institutional debt since they do not actually provide a clear view of a company’s P&L.  They are used in SBA and microlending because many companies do not have audited financials, QoEs, or internally prepared financial statements.

D. Debt Schedule & Asset List

·  List of Debts.  A schedule debt that the company has taken on as well as corresponding maturities and mandatory repayments is necessary because every lender needs to know what other debts sit ahead, side-by-side, or behind them. 

·   Asset List.  An asset list is also ideal.  Depending on the specific collateral that the lender is seeking to secure against, a 3^rd party appraisal a review of the underlying asset will likely be conducted.

E. List of Shareholders

·  The list of shareholders including the class of shares, liquidation preferences, voting right, and seniority will be requested.

F.  Legal Documents

·   Prior to closing a borrower will need to deliver standard formation documents including the corporate bylaws / operating agreement, articles of formation, EIN, and a board or shareholder resolution approving the decision to incur debt. 

Finding a Lender is Like Dating: Why Preparation Matters

Finding the right capital provider is like dating. Prior to the first date, Accrefi can review your materials to determine if there is a mutual fit between your company and prospective lenders in the market, then curate a short list of the best suitors. 

After reviewing with you, and assembling the necessary files that will be fed to a lender during the diligence process, we “prime the pump” and set up your first date.

When you take your first meeting with a prospective lender, the lender has already been prequalified and highly interested in your deal.  They come to the table eager to learn about how your business works, and looking for ways to “say yes” to your deal.  Hence, it is imperative that you make a strong first impression in that initial meeting just like you would want to on a first date.

In order for a first date to go smoothly, your company should adequately prepare your pitch, including having a concise and realistic financing ask.  You will need to be able to clearly articulate what the use of funds will be allocated towards.

Following up after the first date is also crucial.  Just like a dating partner wants to know if it is worth spending more time with a person for subsequent dates, lenders will want to quickly review the files that were prepared (with the help of Accrefi) to determine if it is worth moving the deal through their diligence funnel.  The mistake that borrowers often make is underpreparing ahead of a debt raise so that when they actually enter the diligence stages, the rhythm is stop & go.  This causes lenders to lose interest in the deal. 

Or worse, they might draw the conclusion that the borrower is not capable of exhibiting the financial maturity to produce accurate diligence requests in a timely manner.  This is a surefire way to shut the door on yourself.  As such, it is important for a borrower to have the right advisor through the dating process of finding a suitable lender.

How to Get Started with Accrefi

Getting started with Accrefi is simple and streamlined. [ ]

Why Having A Strategic Advisor Like Accrefi Is Crucial Accrefi’s track record is reflected in consistent, third-party client feedback. Companies across stages from emerging growth to established operators cite Accrefi’s ability to navigate complex financings with speed, precision, and discipline. Clients frequently highlight Accrefi’s depth of lender access, analytical rigor, and execution quality as differentiators that materially improve deal outcomes.

One client described Accrefi as providing direct access to the best available financing options without unnecessary cost or compromise, while another emphasized the firm’s attention to detail and work ethic as decisive in closing successful transactions. Collectively, these endorsements reinforce a clear value proposition: broader capital access, better-informed decisions, and a more efficient path to closing.

If you’re curious whether your company qualifies for accretive financing, or you'd like to explore available options, you can reach out directly to their team via the contact page:

Frequently Asked Questions

Why do lenders ask for so many documents during diligence?

Because lenders are not just evaluating your company they are underwriting how they get repaid. Every diligence request maps back to one of five repayment pillars: collateral, revenue quality, cash flow, equity support, and other credit protections. The purpose of diligence is to build enough confidence across those pillars that the lender can issue capital with a high degree of repayment certainty.

What is the single biggest mistake companies make when preparing for diligence?

The most common mistake is treating diligence as a reactive exercise instead of a strategic one.  Many companies wait until a lender asks for documents before assembling them, which leads to delays, inconsistencies, and credibility issues. Well-run processes front-load this work so that when lenders engage, the information flows smoothly and keeps underwriting momentum intact.

What financial statements should I prepare in advance?

Lenders typically expect an income statement, balance sheet, and cash flow statement covering year-to-date plus the last two fiscal years, along with AR and AP agings for the past 6–12 months. These documents allow underwriters to assess profitability, leverage, liquidity, and working capital behavior all of which directly influence loan sizing and structure.

Why do asset based lenders care about AR aging and customer data?

Because for asset-based and revenue-driven loans, receivables are often the primary source of repayment. Lenders use AR aging, customer concentration, disputes, and dilution patterns to determine how much of your revenue is actually financeable. Weak or concentrated receivables can significantly reduce borrowing availability, even when top-line revenue looks strong.

How do lenders decide how much cash flow my business can really support?

Cash-flow lenders rely on normalized EBITDA rather than reported earnings. They adjust for one-time expenses, owner-specific costs, and other distortions to determine what cash flow is truly sustainable. This adjusted EBITDA becomes the foundation for leverage calculations, which is why lenders require detailed financial schedules and often a Quality of Earnings analysis to validate it.

Why don’t tax returns work for institutional lenders?

Tax returns are designed to minimize tax liability, not to reflect economic reality. They often use cash-basis accounting and contain timing differences and tax strategies that distort operational profitability. Institutional lenders require accrual-based financials and normalized earnings analysis to understand how much debt the business can reliably support.

What information helps lenders understand the stability of my revenue?

Lenders focus heavily on customer concentration, retention, revenue mix, and contract structure. They want to see whether revenue is diversified, recurring, and predictable rather than dependent on a few accounts or one-off transactions. Detailed customer schedules and historical revenue data allow lenders to assess how durable your cash flow really is.

How do asset-based lenders evaluate collateral?

ABL lenders calculate borrowing availability using a formula called the borrowing base. They start with eligible receivables, inventory, and equipment, apply conservative advance rates, and then subtract reserves for dilution, concentration, obsolescence, and other risks. The result determines how much liquidity you can draw at any moment, making collateral quality just as important as its dollar value.

What causes deals to stall or fail in diligence?

The most common reason deals fall apart is inaccurate, inconsistent, or incomplete data delivery. When lenders experience delays or conflicting numbers, it signals operational risk and financial immaturity. Even strong businesses can lose lender interest if they cannot demonstrate discipline and responsiveness during diligence.

How does working with Accrefi improve the diligence process?

Accrefi prepares and packages your diligence before lenders ever see the deal. By aligning your financials, data, and narrative with what each capital provider actually underwrites, Accrefi eliminates false starts and keeps deals moving forward. This results in better lender fit, faster underwriting, and materially higher closing certainty.