What lenders actually read, the ratios that matter, and how to pre-negotiate terms

A bank package is not a document dump. It’s a curated, lender-ready narrative backed by numbers that survive scrutiny. Tight packages move through credit faster, earn cleaner covenants, and avoid the "please resend page 42" purgatory.

At Sharp CFO™, we build packages that speak banker. Mike, our founder, simultaneously ran a CPA firm, served as a CFO, and operated as a California real estate broker originating and underwriting mortgages. Translation: we’ve worked both sides of the table—corporate credit and the personal "global cash flow" lens lenders actually use.

What lenders actually read

Credit teams skim more than they admit. Put the signal up front:

• One-page executive summaries
  Company snapshot, ownership/management bios, ask (facility type/amount), use of proceeds, sources & uses, collateral overview, and guarantee structure.
• 13-week cash flow + 12–24-month forecast
  Direct-method weekly cash for near-term risk, then monthly P&L/BS/CF with assumptions. Include a sensitivity case (for example, −10% revenue, +2% COGS) to show resilience.
• Trailing financials
  Last 3 years (audit/review/compile), TTM bridge, YTD with budget vs actual, and a KPI pack: margin by product, customer concentration, backlog, AR aging buckets, inventory turns, on-time delivery.
• Borrowing base and collateral
  Clean AR aging (exclude related-party/contra), inventory detail (RM/WIP/FG), fixed-asset schedule with serials, real-estate schedules/appraisals when relevant.
• Owner/guarantor file
  Personal financial statement, two years 1040s with K-1s, REO schedule, and contingent liabilities. Lenders model global cash flow even on corporate facilities.

Ratios that actually move the needle

Manage to these and you’re speaking the lender’s dialect:

• DSCR (Debt Service Coverage): EBITDA or free cash flow ÷ scheduled principal + interest. Target ≥ 1.25x; 1.35x earns goodwill.
• FCCR (Fixed-Charge Coverage): DSCR plus lease/rent and sometimes capex floors or owner draws.
• Leverage: Total debt ÷ EBITDA; sub-3.0x is comfortable in many conventional deals.
• Liquidity: Current ratio ≥ 1.2x–1.5x; Quick ratio matters if inventory quality is spotty.
• Working-capital velocity: DSO, DPO, DIO with trend lines and a concrete plan to improve.
• Collateral coverage: For ABL/LOCs, advance rates hinge on AR eligibility and inventory haircuts; keep ineligibles out of the base.

Covenant Dashboard that ties these ratios to both historicals and the forecast.

How to pre-negotiate terms (credibly)

Walk in with a data-backed term sheet you could live with:

• Structure: Split asks into a LOC for working capital and a term loan for CAPEX/acquisitions; match tenor to asset life.
• Advance rates: AR 80–85% (current, <90 days); inventory 30–50% depending on WIP/FG mix.
• Pricing: SOFR + spread with a realistic floor; propose a pricing grid that steps down as DSCR/leverage improve.
• Covenants: DSCR ≥ 1.20–1.25x, max leverage with headroom; seek equity-cure or paid waiver options.
• Reporting: Monthly borrowing base; quarterly financials (30–45-day lag); annual CPA review if full audit is overkill.
• Guarantees: Limit to specific owners; negotiate carve-outs and release triggers at leverage/DSCR targets.
• Prepay/fees: Cap origination; avoid make-whole on conventional term; soft prepay after year one.

Add a Bank Matrix comparing three lenders’ proposed structures, rates, covenants, and collateral asks. It shows you’re serious without turning it into an auction circus.

Packaging details that win

• Consistency: Names, amounts, dates, and totals tie across every schedule. Zero math errors.
• Risk with mitigation: One paragraph per risk with proof: "Concentration 31%; two MSAs signed; pipeline reduces top-customer to 18% in 12 months."
• Owner discipline: Reasonable W-2 for owner-operators, formal accountable plan, no mystery distributions.
• SBA literacy: Even if you go conventional, show you understand SBA rules and fees; it signals preparedness.

Bottom line

A lender-ready package is a story the numbers can defend. Lead with cash predictability, covenant math, clean collateral, and a fair, pre-negotiated term sheet. With Mike’s simultaneous CPA/CFO/lending background and Sharp CFO’s operating discipline, our packages move from inbox to "approved" with less drama and better terms.

Download our Bank Package Starter Kit template (Excel File Format)

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