Short answer
Lenders to early-stage companies can't rely on profits, so they look at where repayment will come from and what protects them if plans change. The main factors are cash runway and burn, the quality and growth of revenue, the strength and commitment of existing investors, the value of the company's technology or IP, and a credible plan to reach breakeven or the next funding round.
Key facts
- Repayment source: revenue growth, the next round or money owed
- Runway and burn rate
- Revenue quality: recurring, contracted, diversified
- Investor support and capacity to follow on
- IP and technology value
What lenders look at
| Factor | What they want to see |
|---|---|
| Runway | Enough cash to cover the plan, with headroom |
| Revenue | Recurring or contracted, growing, not reliant on one customer |
| Investors | Institutional backers who can support another round |
| Path to breakeven | A forecast that reaches it, or the next round, within the loan's life |
| Technology and IP | Assets with value if plans change |
| Management | A team that reports accurately and on time |
The due diligence process
Due diligence usually covers management accounts, forecasts, the cap table, investor updates, key contracts and, increasingly, live access to accounting software and bank data. Expect questions on assumptions behind the forecast and what happens if growth is slower.
How to prepare
- Keep monthly management accounts up to date and reconciled.
- Build a forecast with a downside case.
- Know your burn, runway and unit economics.
- Have recent investor updates ready.
How Nighthawk does it
Nighthawk sizes and prices every venture debt facility around three margins of safety: a path to profitability, supportive shareholders and valuable IP.
Related questions
Do lenders need personal guarantees from founders?
Some do. Many venture debt lenders don't, relying on the company's assets instead.
Will a lender lend to a loss-making company?
Yes, if there's a credible path to repayment and strong investor support.