What to Know Before Raising Debt: A Practical Guide for Business Owners
Gavin Harrison, of the Dow Schofield Watts Debt Advisory team, outlines the key steps business owners should take before going to market to raise debt.
Raising debt can be a powerful way to fund growth without giving up equity, but preparation is key. Whether you’re approaching banks, alternative lenders, or private credit providers, understanding what lenders look for and how to present your business can significantly improve your chances of securing the right facility. Here are ten essential steps to take before going to market to raise debt.
1. Know your numbers
Lenders appreciate clarity. Stable financials and forecasts foster trust and minimise perceived risk. Altering information partway through a process causes delays and adds uncertainty to the outcome.
2. Build a financial forecast model
Even a simple model helps lenders understand how and when they’ll be repaid. It is fundamental to a lender to understand a business’s ability to generate cash, and this helps them to forecast risks and build confidence in your ability to service a loan.
3. Assess the right debt level
Debt can be a cost-effective way to fund growth while retaining control. But it must be repaid. Stress-test your cash flows to ensure your business can handle repayments even under pressure.
4. Educate your relationship team
As a loan applicant, you are unlikely to speak directly to the decision makers (‘Credit’ or ‘Investment Committee’). Making sure nothing is lost in translation when your relationship team present the business internally is dependent on ensuring they understand the strengths and risks of your business in the same way as you do.
5. Prepare a data room
Organising financials, contracts, and KPIs into one place ahead of time demonstrates to lenders an ability to provide information promptly. Lenders value this far more than you might expect.
6. Understand covenants
Standard lender covenants and legal restrictions may not align with how you operate your business. These requirements can vary significantly between lenders, so it’s important to understand their implications early in the process.
7. Know your collateral
Identify assets that could be pledged as security and understand how they’re valued. Strong collateral can improve pricing and expand your pool of potential lenders.
8. Model multiple scenarios
Show lenders you’ve considered both upside and downside risks. This demonstrates prudence and helps you better understand the impact of introducing debt into your business.
9. Maintain the relationship post-closing
Debt represents a relationship, not a one-off transaction. Stay in regular contact with lenders and meet reporting obligations early. Remember that what may feel immaterial to you, could still trigger concerns at the lender if not communicated openly.
10. Remember: lenders are people, too
Most questions from lenders are valid and not intended to frustrate. Approach the process with openness and professionalism, as it goes a long way in building trust.
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Preparing ahead of a debt raise is critical—it ensures you present a clear financial story, aligns stakeholders, anticipates lender concerns, and secures the right structure at the best terms. Strong preparation builds confidence and indisputably unlocks better outcomes.
By following these steps, you’ll be better equipped to engage lenders, negotiate favourable terms, and secure funding that supports your long-term goals. If you need more guidance, contact Gavin today.
