I Have a Financing Offer and I Do Not Know If It Is Good
Price is the part of a financing offer that everyone reads first, and the part that matters least once something goes wrong. What decides whether an offer was a good one is almost never the margin. It is what the money is secured on, when it has to be repaid, what the borrower has promised to keep doing for the next several years, and what the document permits the lender to do on the day the plan runs late.
An offer is also hard to judge in isolation, which is the position most borrowers are in. There is one document on the table, it arrived after weeks of effort, and it says yes. The temptation is to read it as a verdict on the transaction rather than as a proposal from one institution with its own product, its own appetite and its own standard documentation. It is the second of those. Read that way it can be assessed, and most of the assessment does not require a second offer to compare it with.
What the document in front of you actually is
The first question is whether the paper is an offer at all. An indicative term sheet sets out terms an institution would be prepared to propose, subject to credit approval, subject to valuation, subject to legal review and subject to conditions still to be defined. A committed offer has been through the committee and binds the lender if the stated conditions are met. The two documents look alike, both are delivered with the same warmth, and only one of them is financing.
The conditions precedent are where the real content of a conditional offer sits, and they are usually at the back. A valuation acceptable to the lender in form and substance. Legal due diligence with no material findings. Security perfected and registered. Insurance assigned. Corporate authorisations in a form the lender’s counsel approves. Each of those is reasonable on its own, and together they describe how much of the transaction is still capable of failing after the borrower has begun spending money on it.
Some parts of a document that binds the lender to nothing bind the borrower firmly. Exclusivity for a period. Arrangement or commitment fees payable on acceptance rather than on drawdown. An undertaking to pay the lender’s legal and valuation costs whether or not the transaction completes. None of this is improper and all of it is negotiable, but only while the borrower still has alternatives, which means before the acceptance is signed rather than after.
Read the validity period and the timetable against the transaction’s own calendar. An offer valid for a limited period, requiring conditions that take longer to satisfy than the period allows, is not an offer that can be completed as written. The borrower who notices this at the start negotiates the timetable while he still has something to trade. The borrower who notices it at the end asks for an extension from a position of no leverage, and extensions have terms.
The structure: the amount, the term and the way it is repaid
The amount is compared with the requirement, not with the request. If the offer falls below what the transaction actually needs, the difference has to come from somewhere, and the honest answers are a second layer of debt, more equity, a renegotiated purchase price or a smaller transaction. Optimism about costs is not on the list. An offer that leaves a gap and does not say how the gap closes is an offer to begin a transaction that cannot finish.
The term is read against the plan rather than against comfort. A facility that matures before the asset is stabilised, before the units are sold or before the business has done what the borrowing was meant to allow converts an operational plan into a refinancing event, on a date fixed today under conditions nobody can see from here. Where a short term is unavoidable, the questions are what the extension mechanics are, what they cost, and whether the extension is the borrower’s right or the lender’s discretion.
The repayment shape decides whether the transaction breathes. Amortising debt consumes cash from the first period and steadily reduces the balance to be refinanced later. A bullet leaves the cash free and moves the entire obligation to a single date. Neither is better in the abstract, and the test is whether the profile matches the cash the asset will genuinely produce in its early life, including the months in which it produces none. Where the money arrives in tranches, the conditions attached to each drawdown deserve exactly the same reading as the conditions attached to the first, because a building site that stops between drawdowns is not a problem that can be argued about later.
These elements are not independent, and the offer works as one mechanism rather than as a list of terms. A finer price attached to a short term and a full bullet can cost more, in total and in risk, than a longer facility priced less keenly, because the short one obliges the borrower to buy a refinancing in conditions that cannot be known today. That comparison is never visible on the front page of a term sheet, and it is the comparison that matters.
The security: what it takes, and what it gives back
The security section is where an offer quietly becomes expensive without touching the price. The question is not whether security is required, because it always is, but whether what is taken corresponds to what is being lent against. A mortgage on the asset being financed is the transaction. A mortgage on that asset, plus a pledge over the shares of the company that owns it, plus a charge over a second property, plus an assignment of the rents from a third, is a lender solving a problem the file failed to answer.
Personal and corporate guarantees deserve separate attention, because they are the terms most often accepted quickly and regretted slowly. A guarantee covering the whole obligation without limit of amount or time is a different instrument from one that is capped and released on a defined event. Where a guarantee is requested, it is worth asking directly what it is compensating for. Sometimes the honest answer is a gap in the file that could be closed instead, and a better file is cheaper than a guarantee.
The release provisions matter as much as the grant, and they are the least read paragraphs in the document. If part of the debt is repaid, does anything come back. If one of three secured assets is sold, on what terms will the lender release it and where must the proceeds go. A group that grants cross-collateralised security with no release mechanics has not merely financed a transaction. It has made every future disposal and every future financing conditional on this lender’s consent, and consent acquires a price on the day it is needed.
The last question in this section is what is left over. After signature, which assets remain unencumbered, what can still be offered to the next lender, and what the existing facilities elsewhere in the group would say about any of it. An offer that leaves the borrower with nothing to show anyone else has removed his alternatives, and alternatives are what discipline every negotiation that follows.
The conditions that outlive the drawdown
Covenants are the terms that live in the transaction for years after the money has been spent. Financial covenants set thresholds the borrower must keep meeting, tested periodically, measured on definitions written into the document that are not always the ones the borrower uses internally. The threshold matters less than the headroom, and the useful exercise is to run the covenant against the plan’s slow scenario rather than its base case. A covenant comfortably met in the plan and breached in a delayed version of the plan is the mechanism by which a manageable delay becomes a default.
The non-financial obligations are broader than most borrowers expect. Information to be delivered on a schedule, in a format, audited or not. Restrictions on distributions to shareholders, on new debt, on lending inside the group, on granting security elsewhere. Consent required for a change of control, for a material disposal, sometimes for a change of tenant or of managing agent. Each is defensible from the lender’s side of the table. Together they describe how much freedom the borrower has sold, and that should be a decision rather than a discovery.
Then the definitions that only matter in bad weather. What constitutes an event of default, whether there is a cure period and how long it runs, what the material adverse change clause covers and who decides that it has occurred. A borrower reading those clauses should picture the specific difficult month his own transaction is most likely to have, and ask precisely what the document allows the lender to do during it.
Prepayment is the other side of flexibility, and it is priced. Whether the loan can be repaid early, from what date, with what compensation, and whether the sale of an asset triggers mandatory repayment of the whole. An offer that cannot be exited is a longer commitment than its term suggests, which matters most to the borrower whose entire plan is to refinance once the asset performs.
Judging the offer against your plan
A good offer is one that survives the plan’s slow scenario without handing anyone the right to intervene, and that leaves the borrower able to do the next thing. That is the test, and it can be applied to a single offer with nothing to compare it against. Take the plan, delay it, reduce the income, postpone the exit, and read the offer again in that world. Terms that were invisible in the base case become the only terms that matter.
Beyond the price, four qualities separate a good offer from a merely available one. Security proportionate to what is being financed, with defined releases. A term and a repayment profile that fit the plan rather than the lender’s product. Covenants with genuine headroom and cure rights that assume the world will be imperfect. And a counterparty that will still be reachable and reasonable when something has to be renegotiated, which is not a contractual term at all and is worth more than several that are.
A northern European family office examining residential and hotel assets in Spain, in individual transactions from EUR 3M to EUR 20M, ran each opportunity through acquisition, financing, tax, ownership structure, operation and exit together, and looked specifically at what the leverage did to net return and to future liquidity. Several transactions that looked attractive on gross return did not survive that reading and were set aside. The financing was assessed as part of the investment rather than after it, which is the only way an offer can be judged at all.
Which returns the question to where most borrowers stand: one offer, obtained with effort, and a strong temptation to treat it as the answer. Available and good are not the same thing. Some offers should be signed as they arrive. Some should be negotiated on the three or four terms that will decide how the next years feel, and those terms are rarely the ones the covering email highlights. And some are a signal that the transaction, or the file behind it, is not yet ready to be financed. Knowing which of the three is on the table is the work, and it is done before the acceptance is returned, because after that the document stops being a proposal and becomes the rules.
Montclare does not act as a lender. It structures transactions, prepares the file and coordinates financing with authorised institutions.