Short answer
A lender essentially wants to know whether the company can repay from the cash it generates, what happens if it cannot, and whether its information can be trusted. In practice, the analysis falls into five blocks: debt service capacity, leverage, collateral, track record and quality of information, and the purpose of the loan.
1. Debt service capacity
This is the central question: can the cash the company generates service the new debt on top of what it already owes? Lenders look at EBITDA and, above all, at operating cash flow after working capital and the investment needed to keep the business running.
A common measure is debt service coverage: how many times the cash generated covers interest and principal for the period. Projections count, but in proportion to their credibility. A forecast that departs sharply from history needs an explanation.
2. Leverage and capital structure
How much the company already owes, to whom, on what terms and at what cost. Net debt to EBITDA is the most common measure, but the maturity profile matters as much as the size: a lot of debt due in the short term signals refinancing risk.
Existing covenants, such as leverage limits agreed with other lenders, are also part of the picture.
3. Collateral
Collateral does not replace repayment capacity, but it defines how much the lender recovers if things go wrong. Common forms in corporate lending include receivables, liens over property, machinery or equipment, shareholder guarantees and cash deposits.
The lender looks at enforcement value, not book value: how much the asset turns into cash, and how quickly. Guarantee schemes can complement collateral on eligible loans; in Brazil, for example, the BNDES FGI.
4. Track record and quality of information
Lenders check the credit history of the company and its shareholders, typically through credit bureaus and, where they exist, public credit registers such as the Central Bank of Brazil's SCR. Defaults, protests and tax arrears weigh heavily.
So does the quality of information: statements closed on time, numbers that reconcile between the balance sheet, sales and bank statements, and quick answers to questions. Messy information turns into a lower limit, a shorter tenor or a higher rate.
5. What the money is for
Working capital, capex, refinancing or an acquisition: each purpose calls for a different tenor and structure. Short-term credit funding long-term investment is a mismatch an analyst will spot immediately.
When the loan funds a project, the project itself is analyzed: budget, schedule, return and what happens to cash during implementation.
How to arrive prepared
- Financial statements closed, reconciled and, ideally, reviewed.
- A cash flow projection consistent with history, with assumptions explained.
- A complete debt map: lenders, balances, costs, tenors and collateral.
- A concise presentation of the company, its market and the use of funds.
- Collateral identified, with documentation in order.
- An explanation of the weak points before the lender asks.
Anyone who has worked on the lender's side knows the credit decision starts long before the credit committee. It starts with the first impression the company's information makes on the analyst.
Debt structuring, investor materials and development finance in Brazil.
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