Preparing to Raise Debt by Jason Garcia

TL;DR - Numbers are important for lenders when taking on debt. Forecasted earnings should match the incentives of the lender.

Helpfulness - 4

Topic Tags - Debt, lenders, forecasting, capital stack, ambition

Questions answered:

  • How should a founder prepare to take on debt?

Summary:

  • Raising debt is more based on numbers. Convincing the lender you can pay them back is crucial. Lenders also want covenants, which is a promise on how well your company will perform
  • Be prepared to present your business articles of incorporation, financial statements, KPI and metrics, along with a forecasted cashflow of 12 months.
  • When forecasting, create one that looks inverted to the capital stack. Do not be too aggressive with projected earnings as debt lenders want to see more confidence than ambition, which is the opposite of equity investors.

Follow-up Links: