GUIDE · VENTURE DEBT READINESS
Venture Debt Readiness
What lenders want before they'll issue a term sheet.
A field guide to the 12 questions and 17 documents that decide whether debt is cheaper than equity — or just cheaper-looking. Built for SaaS founders considering a debt facility in 2026.
HOW TO USE THIS
Eight categories. Score each 1–5.
01
For each of the eight categories below, read the five score descriptions and pick the one that most honestly reflects where you are today. Don’t aspire — describe.
02
If you’re between two scores, pick the lower one. Investors will read the gap, not the aspiration.
03
When you finish, the running total updates live. Your total falls between 8 and 40.
04
The interpretation at the end translates that total into what it means and where to look first. Categories you scored lowest are usually the highest-leverage places to spend the next 30 days.
The interpretation at the end translates that total into what it means and where to look first. Categories you scored lowest are usually the highest-leverage places to spend the next 30 days.
CATEGORY
01
Legal
Entity structure, option plan adoption, employee and advisor agreements, 83(b) elections, FINCEN BOI, IP assignment.
1
MAJOR GAPS
2
PATCHY
3
FUNCTIONAL
4
INVESTOR-READABLE
5
DILIGENCE-READY
CATEGORY
02
Legal
Accuracy of current ownership, ability to model forward, option pool sufficiency, treatment of convertible instruments. Score for Cap Table
1
MAJOR GAPS
2
PATCHY
3
FUNCTIONAL
4
INVESTOR-READABLE
5
DILIGENCE-READY
CATEGORY
03
Legal
Coverage across the 15 finance and back-office functions: bookkeeping, controller, payroll, AR/AP, forecasting, investor relations, treasury, CPA, legal, benefits, billing. Score for Team
1
MAJOR GAPS
2
PATCHY
3
FUNCTIONAL
4
INVESTOR-READABLE
5
DILIGENCE-READY
CATEGORY
04
Legal
Stack across 11 categories: accounting, expenses, payroll, benefits, banking, HRIS, FP&A, cap table, billing, AP, CRM.
1
MAJOR GAPS
2
PATCHY
3
FUNCTIONAL
4
INVESTOR-READABLE
5
DILIGENCE-READY
CATEGORY
05
Treasury & Banking
Yield on cash, 2FA on accounts, dual approval on wires, ACH whitelist, credit card program.
1
MAJOR GAPS
2
PATCHY
3
FUNCTIONAL
4
INVESTOR-READABLE
5
DILIGENCE-READY
“Without numerical fluency, in the part of life most of us inhabit, you are like a one-legged man in an ass-kicking contest.”
CHARLIE MUNGER (BERKSHIRE HATHAWAY)
Series A Diligence Readiness
Series A Diligence Readiness
monster energy
HOW TO USE THIS
Two sections. One decision.
Section 1 — Twelve Business Questions. What lenders are trying to answer about your business before they issue a term sheet. Each question is paired with what lenders are looking for, the benchmark that anchors a defensible answer, and the most common mistakes.
Section 2 — Seventeen Documents. What a lender's diligence team will open. Check off what you have today. The running counter tells you where you stand.
The core decision. Debt is right if you have predictable contracted revenue, have raised institutional equity, can absorb the principal-amortization step-up, and are using debt to extend runway between equity rounds — not to substitute for them.
If any of those is not true, the most useful thing this guide can do is help you arrive at “not yet” with confidence.
This guide draws on the same diagnostic framework Centripetal uses with every client — a hundred-question instrument that scores back-office readiness across eight categories. What you have here is the debt-specific surface of it.
SECTION 1
The Twelve Questions Lenders Are Trying to Answer
Lenders aren't reading your deck for the story. They're underwriting whether you can service the debt without breaching covenant for the next 36 months.
CLUSTER A — The Money Picture
Five questions about ARR, growth, burn, cash, and runway. These determine whether you qualify for institutional venture debt at all.
Q01. What is your ARR?
What lenders look for. A clean, contracted ARR number that ties to live customer agreements. Most institutional venture debt lenders require $1M+ ARR minimum, with the more competitive facilities opening at $3M+ ARR.
Common mistakes. Reporting CARR (contracted) as ARR (live). Lenders will spot the difference inside an hour because they have access to your billing system in diligence.
Q02. What is your YoY growth rate?
What lenders look for. Lenders are not equity investors — they don't need 50% YoY growth. They need consistent growth and predictability. A flat 15% grower with 95% NRR is more bankable than a 60% grower whose CAC payback is collapsing.
Common mistakes. Smoothing growth with one large enterprise deal. Lenders run cohort analysis on revenue — they will see whether last year's number was a single-customer event.
Q03. What is your trailing-3-month cash burn?
What lenders look for. Net burn, calculated honestly. Most venture debt covenants are tied to burn — a 6-month liquidity covenant means you must hold cash equal to six times this number at all times. Underreporting burn here doesn't help you negotiate the facility; it just sets a covenant level you'll breach later.
Common mistakes. Reporting gross burn as net. Excluding founder salaries that come back into the model post-facility-close. Treating quarterly cash hits (annual SaaS contracts paid in advance, AWS commitments, conference sponsorships) as not part of monthly burn.
Q04. How much cash do you have in the bank?
What lenders look for. A number that ties directly to your most recent bank statements across every account. The cash answer drives the runway answer drives the facility size.
Common mistakes. Reporting consolidated cash that includes restricted balances (escrow accounts, customer deposits held in trust). Restricted cash does not count toward liquidity covenants. Confusion here at term sheet stage becomes a covenant breach at month four.
Q05. What does that imply for your runway?
What lenders look for. Runway calculated three ways: with the debt, without the debt, and under a downside scenario. Lenders want to see that the debt extends runway materially without creating a worse problem when amortization begins.
Common mistakes. Running runway off last month's burn instead of forward burn. Forgetting that interest-only flips to principal-and-interest after 6–12 months — that step-up can be a significant burn increase right when you're trying to demonstrate operating discipline.
CLUSTER B — Revenue Quality
Four questions about retention, churn, growth composition, and contract structure. Plus the deep-dive that lenders care about more than equity investors do.
Q06. What are your net and gross revenue retention?
What lenders look for. GRR ≥ 90% is table stakes. NRR ≥ 105% is preferred. Lenders care about retention more than equity investors do because retention is what services the debt — every dollar that churns is a dollar that doesn't show up to make the principal payment.
Common mistakes. Reporting blended retention that hides a problem in a specific cohort or vertical. Excluding “they weren't really fit” customers from the churn count. Lenders will pull customer-level revenue history and reconstruct cohorts themselves.
Q07. What is your logo churn?
What lenders look for. Logo churn benchmarked against your customer segment, not against SaaS as a whole.
Common mistakes. Confusing dollar churn with logo churn. They tell different stories. A company can have 5% logo churn and 0% dollar churn if expansion offsets — but the underlying customer relationship is still degrading.
Q08. Trailing twelve months — new vs. upsell vs. downsell vs. lost?
What lenders look for. A clean monthly waterfall. Lenders want to see growth composed of healthy components — meaningful new logo, meaningful upsell, manageable downsell, contained churn.
Common mistakes. Reporting net change without composition. A 20% net growth quarter built on 30% new logo + 10% downsell tells a different story than 20% growth built on 5% new logo + 15% upsell on a fragile base.
Q09. What is the structure of your contracts?
What lenders look for.Annual prepay is the gold standard for debt underwriting. Lenders fundamentally want predictable cash inflows that arrive faster than the loan amortizes. Monthly billing is workable but produces a smaller facility. Usage-based revenue is hardest to underwrite — most lenders will discount it heavily or carve it out of the borrowing base entirely.
Common mistakes. Reporting “annual contracts” when most are billed monthly with annual minimums. The cash difference is the entire point of the question.
CLUSTER C — The Backstop
Two questions about margin discipline and equity backstop — the second of which is the most important non-financial question in venture debt diligence.
Q11. What is your net income margin (excluding stock-based comp)?
What lenders look for. Lenders are more forgiving on margin than equity investors at Series A — they're pricing in current loss, not future profitability. But the margin trend matters. Margins improving over the last 12 months signals operating discipline; margins deteriorating signals the opposite.
Common mistakes. Including stock-based comp without flagging it. Treating R&D tax credits or one-time grants as recurring offsets. Lenders will ask for the bridge between GAAP net income and adjusted EBITDA.
Q12. Would your existing investors fund six more months of runway if asked?
What lenders look for. This is the most important non-financial question in venture debt diligence. Lenders are underwriting two things: (1) the company's ability to service the debt, and (2) the equity backstop if things go wrong. The existence of a willing equity backstop fundamentally changes the lender's recovery scenario.
What “ready” looks like. Your seed lead has been kept current quarterly. They are genuinely enthusiastic about the next round. They would, if you called tomorrow, write a bridge — even if grudgingly. That is the answer that gets your facility approved. If the answer is yes, the lender will sometimes call your lead investor to verify.
Common mistakes. Overstating your investor relationship. If the lender calls and your seed lead's tone is anything other than “yes, we're committed to this team,” your facility shrinks or disappears.
SECTION 2
The Seventeen Documents Lenders Will Open
Debt diligence is more linear than equity diligence. A lender follows a sequence: financials first, contracts second, capital stack and governance third.
GROUP A — Financials
Seven documents lenders open first. The book of record.
01. Accrual-based P&L with proper SaaS expense categories
What it is. Profit-and-loss with the four canonical SaaS expense categories — Sales & Marketing, Research & Development, General & Administrative, and Other. Recurring vs. non-recurring revenue separated. Plus a 12–24 month forward forecast and cash forecast.
Why lenders open it. This is the single most-read document in debt diligence. The expense categorization tells the lender whether the books are institutional. Blended categories (“Operations,” “All Other Expenses”) signal amateur bookkeeping.
Common mistakes. Tagging every expense to “G&A” because the bookkeeper didn't know how to map by department. Recognizing annual contracts as upfront revenue. Forecasts that don't reconcile to the historical P&L.
02. P&L by month, last 24 months
What it is. Twenty-four columns of monthly P&L, accrual basis.
Why lenders open it. Trend visibility. Lenders model your business off these twenty-four columns — they need to see whether revenue is accelerating, decelerating, or volatile.
03. Cash Flow Statement by month, last 24 months
What it is. Monthly cash flow with operating, investing, and financing sections separated.
Why lenders open it. Debt service is paid from cash, not from accrual revenue. Lenders need to see your operating cash flow trajectory, not just your P&L.
04. Balance Sheet by month, last 24 months
What it is. Monthly balance sheet with full asset, liability, and equity detail.
Why lenders open it. To verify that what's on the P&L ties to what's on the balance sheet. Working capital trends. Existing debt. Restricted cash. The balance sheet is where lenders find what's missing from the P&L.
05. AR Aging — Monthly Detail, Last 13 Months
What it is. Aged receivables grouped by 0–30, 31–60, 61–90, and 90+ days, by customer, every month.
Why lenders open it. Two reasons. First, AR is collateral — facilities are often sized as a percentage of eligible AR. Second, persistent 60+ aging signals collection problems or customer disputes.
Common mistakes. Stale aging that hasn't been reconciled in months. Big balances in 90+ that haven't been written off and aren't being collected.
06. AP Aging — Monthly Detail, Last 13 Months
What it is. Aged payables grouped by aging bucket, by vendor.
Why lenders open it. To detect vendor stretching — paying critical vendors late as a cash management technique. It signals stress that doesn't show up in the P&L.
07. Reviewed or Audited Financials
What it is. A CPA-issued review or compilation report. Full audits are typical only at $20M+ ARR.
Why lenders open it. Independent eyes signal seriousness. Bookkeeper-only financials read as thin at the institutional debt level.
GROUP B — Revenue Contracts
Three documents that confirm or break the revenue story you told in Section 1.
08. Top 10 Clients — Contracts and Invoices
What it is. Signed contracts and recent invoices for your ten largest customers by revenue.
Why lenders open it. To verify the contracts are real, signed, and structured the way you described. Lenders will check term length, payment timing, termination clauses, and any most-favored-nation language that could affect future expansion.
Common mistakes. Contracts that are out of date — current pricing renegotiated by email but never papered. Auto-renew clauses that don't actually auto-renew without affirmative customer action.
09. Revenue by Customer, by Month, Past 3 Years
What it is. A spreadsheet showing every dollar of recognized revenue, attributed to a customer, in the month it was recognized, separated into recurring and non-recurring.
Why lenders open it. To run their own cohort analysis, retention curves, and concentration math — independent of yours. This document is where the lender either confirms or breaks the story you told in Section 1.
Common mistakes. Not having this. Many sub-$5M ARR SaaS companies cannot produce this view from their billing system. Building it under deadline pressure introduces errors. The credibility cost of the errors exceeds the cost of building it cleanly six months earlier.
10. Up-to-Date Sales Pipeline
What it is. A current snapshot of pipeline by stage, with weighted forecast.
Why lenders open it. To validate the forecast. A pipeline with 4x next quarter's forecast number signals healthy sales coverage. A pipeline that's barely 1x signals a forecast that won't hold.
GROUP C — Capital Stack & Hygiene
Seven documents that determine whether the facility can actually close — and the equity backstop behind it.
11. Documents Related to Current Debt + Subordination Capacity
What it is. Every existing debt instrument — convertible notes, SBA loans, equipment financing, credit lines, founder loans — with terms and any subordination language.
Why lenders open it. A new venture debt facility requires senior position on the capital stack. The lender will require any existing debt to subordinate. SBA loans are the most common blocker — most cannot subordinate without re-papering the original loan, which the SBA rarely permits.
Common mistakes. Verbal arrangements with early supporters that haven't been papered. Convertible notes with conflicting most-favored-nation clauses. SBA debt that the founder forgot was secured against company assets.
12. 409A Report
What it is. An IRS-required independent valuation, refreshed annually or upon material event.
Why lenders open it. Lenders use 409A as one input to facility sizing — it anchors warrant strike price and signals enterprise value.
Common mistakes. A stale 409A from before a material event (significant new contract, headcount change, valuation event). A stale 409A signals the company isn't running tight governance.
13. Cap Table
What it is. Current capitalization with all instruments — common, preferred, options outstanding and granted, SAFEs and notes pre-conversion.
Why lenders open it. To understand who has economic exposure to a default — and to size warrant coverage. The cap table is also where the lender confirms there's no priming structure on top of the equity.
14. Articles of Incorporation / LLC Operating Agreement
What it is. The formative legal document — Certificate of Incorporation for a C-Corp, operating agreement for an LLC.
Why lenders open it. To verify entity structure and any governance rights that could block the debt facility (some preferred shareholders have approval rights over new senior debt).
15. Board Deck or Pitch Deck
What it is. The current board materials or fundraising deck.
Why lenders open it. Not for the story — the financials carry that. Lenders open it to see what management is telling the board and to compare that narrative to what management is telling them. Inconsistencies between the two are diligence flags.
16. Conversation with Lead Investor
What it is. Not a document — a phone call. The lender wants to speak directly with your existing lead investor (typically the seed lead).
Why lenders open it. To verify that your equity backstop is real. The seed lead's framing on that call shapes the lender's risk model. Enthusiasm extends the facility; ambivalence shrinks it; lukewarm-to-negative tone kills it.
Common mistakes. Seed lead being out of the loop for the last two quarters. Lukewarm reference that the founder didn't know was coming.
17. Outstanding Lawsuits
What it is. Disclosure of any active or threatened litigation, plus any past 24-month resolved cases.
Why lenders open it. Disclosed lawsuits are usually fine. Undisclosed lawsuits found in diligence are not. The risk isn't the lawsuit itself — it's the concealment.