What You Need

Getting a facility done starts long before the term sheet. It starts with whether you can answer, on demand and without a scramble, three questions: what did you originate, what is it worth today, and how do you know. Diligence often stalls on data that cannot survive a stranger's scrutiny. What follows is the readiness work that makes those questions answerable.

The loan tape is your product

A loan tape is a data file with one record per loan receivable, each row carrying the attributes and current status of a single account. Capital providers work from it directly: eligibility screens, concentration testing, cohort analysis and borrowing base mechanics all run off the file you send. Treat the tape as a deliverable you own, not a report you export.

You need a defined source of truth for each category of data, and it will not be a single system. The servicing system is usually authoritative for account-level status, payment history and delinquency. The general ledger is authoritative for booked balances, write-offs and accrued items. Neither one wins a disagreement with the other by default. The discipline is to name the authoritative source per field, then reconcile the two deliberately and document the differences. An originator who says "the servicing system is always right" has skipped the work rather than resolved it.

Every tape needs a stated cut-off date, and the distinction that matters is between two kinds of fields.

• Current-state fields must be as of the cut-off: current principal balance, days past due, delinquency bucket, next payment date, accrued interest, cumulative payments received to date. If balances came from Tuesday's close and delinquency status from Thursday's collections run, the tape is internally inconsistent. That is a genuine defect and a fast way to make a diligence team distrust everything else you send.

• Historical and event-dated fields must retain their original dates and values. Origination date, original principal, original term, and obligor credit attributes captured at underwriting are properties of an event in the past. A FICO score pulled at application is correctly stamped with the application date — restating it as of the cut-off would destroy the record of what you actually knew when you approved the loan. The same applies to charge-off date, modification date, and any refreshed credit score: each carries its own observation date.

The rule is therefore not "every field as of cut-off." It is that current-state fields are as of cut-off, and historical fields carry an explicit event or observation date so a reader can tell which is which. Where a field can be either — a credit score, for instance, which may be original or refreshed — label it unambiguously and give the pull date in its own column.

Alongside the tape, write a data dictionary. One row per field: the field name, what it means, its format, permitted values, and how it is populated. Where a field is derived, show the calculation. Where a field is event-dated, name the companion date field. Where a field is blank, say whether blank means zero, unknown or not applicable. Writing it forces you to discover the fields your own team defines inconsistently, and it saves several rounds of email later.

A workable field set for a receivables tape covers: obligor identifier, origination date, original principal, current principal, interest rate or fee structure, original and remaining term, payment amount and frequency, next payment date, days past due, cumulative payments received, charge-off status and date, restructuring or modification flags and dates, obligor credit attributes at origination with the pull date, any refreshed credit attributes with their own pull date, geography, product type and channel. Add whatever your asset class demands. Do not send a tape with fields you cannot explain.

Reconciliation is the credibility test

Your tape has to tie out. Three reconciliations matter, and you should be able to run all three on demand.

First, tape to ledger. The sum of current principal balances on the tape should reconcile to the receivable balance in your accounting system as of the same date. Differences will exist: accrued but unbilled interest, charged-off accounts still carried in the servicing system, timing on recent originations. That is workable, as long as you can produce a bridge that explains every dollar of the gap.

Second, collections to bank. Cash reported as collected in a given period should reconcile to cash that actually landed in your account. If you use a payment processor, the reconciliation runs through the processor's settlement reports, and you should be able to show the two-step tie.

Third, tape to tape across periods. Take the prior tape and the current one and build the rollforward: beginning balance, plus originations and purchases, less scheduled principal, less prepayments, less charge-offs, plus or minus any sales, transfers or adjustments that apply to your book, equals ending balance. Include every category that actually moves your balances, and label the adjustments rather than leaving a plug. A diligence team will run this exercise themselves, so you want to have run it first.

Here is a fictional illustration of a failed reconciliation. An originator sends a tape with $10,000,000 of current principal across 4,200 accounts, cut off at period end. Their general ledger shows $10,214,000. The gap is $214,000, roughly 2.1%, and it is unexplained. Possible explanations worth investigating include accounts charged off in the servicing system but not yet written down in the ledger, originations funded at period end and booked to the ledger before the servicing system picked them up, and accrued fees the ledger capitalises while the tape reports them separately. Each of those is a hypothesis, not a conclusion. Some resolve into a clean timing bridge; others surface a real control problem. The point is that you should be the one who already investigated, not the one hearing about the gap for the first time on a diligence call.

Cohorts, vintages and the story of your underwriting

A tape shows you the book today. A capital provider needs to see how the book got here and where it is going. That means performance cut by origination cohort.

Group originations by month or quarter and track each cohort's cumulative loss, cumulative net loss, delinquency migration and prepayment behaviour by months on book. Present it as a set of curves, one per vintage, with months since origination on the horizontal axis. Producing it in a familiar format saves the diligence team from reverse-engineering your layout.

The interesting part is not the curves themselves but your explanation of the differences between them. If one vintage is performing worse than an earlier one, you need to know why: underwriting change, channel mix shift, macro deterioration, pricing move, a new product, seasonal effects. Whatever the cause, own it in your first conversation rather than waiting to be asked.

Build a written change log of underwriting policy. Date of change, what changed, why, and which cohorts are affected. This log turns a set of noisy curves into a narrative — a reader can see that your loss rate rose in a specific quarter because you tested a new acquisition channel, and fell again after you shut it down.

Be candid about how much history you have. Present the available history, state the cut-off explicitly, and document where data is missing or incomplete rather than smoothing over it. If a cohort's early months predate a servicing system migration, say so and describe what was carried across. If no cohort has reached full maturity, say so and show what you do have. Estimating ultimate loss from partial curves is ordinary analytical work. Presenting a track record you do not have is a different thing.

Credit policy, exceptions and servicing

Write down your credit policy. Not the marketing version, the operating version: the criteria an application must meet to be approved, the decision rules, the documentation required, the verification steps, the authority levels for approval and for exceptions.

Then track exceptions. Every approval that departed from policy, what the departure was, who approved it, and why. Exception rate is a diligence question you will be asked, and the only bad answer is that you do not track it. How exceptions perform relative to policy-conforming accounts is an empirical question for your own data to answer, and the answer is worth knowing before someone else asks. Exceptions running at a high share of originations with no documented rationale is a governance finding regardless of how they perform.

On servicing, the questions are practical. Who services the assets, in-house or a third party. What system do they use. How are collections applied and in what priority. What is your collections workflow by delinquency bucket. What is your charge-off policy and is it applied consistently. If you service in-house, expect a capital provider to raise backup servicing. If you service through a third party, expect diligence on the servicer as well as on you, and expect questions about what happens to the servicing agreement if the servicer fails or you terminate.

Backup servicing arrangements vary in scope, and the terms differ by provider and by contract. Some involve little more than a named party on standby; others include periodic data transfer, file format testing and defined transition timelines. What a given backup servicer is obliged to do, and what triggers those obligations, is set by the engagement terms rather than by convention or by the label attached to the arrangement. Read those terms alongside the facility documents. Expanding the scope of a backup arrangement takes time and money you would rather budget than absorb, so raise it early.

People, controls and the plumbing

A capital provider is financing your operating capability as much as your assets. Be ready to explain who does what.

Name the individuals responsible for origination, credit, servicing, collections, finance and compliance. Where one person holds several of these roles, which happens at small scale, be direct about it and explain the compensating controls. Segregation of duties around cash is the sensitive one. Nobody should be able to originate a loan, disburse the funds and reconcile the bank account without a second pair of eyes.

Document your controls over cash movement: who can initiate a payment, who approves, what dual-authorisation exists on your banking platform, and how bank details for a new counterparty are verified. Payment fraud is a live risk and capital providers know it. Expect a diligence team to probe collateral controls, borrowing base administration and financial reporting in the same way.

You also need a cash and equity plan. Understand how much equity you need to contribute at closing, how much you need for ongoing purchases, and how much you need to hold back for fees, reserves and operating expenses. A committed amount is not cash you can draw at will, and that distinction catches people out. The warehouse worked example runs the arithmetic on a fictional facility, including how upfront fees and unused-line charges affect the surplus. Read it before you build your own model, and pair it with the breakdown of individual charges in facility fees and all-in cost.

Legal, entities and the diligence room

Assemble the corporate and legal file early because it takes longer than expected. Formation documents and organisational chart for every entity in the structure, including any special-purpose vehicle. Cap table and shareholder agreements. Board consents authorising the financing. Material contracts, including origination platform agreements, servicing agreements, marketing partnerships and any existing debt. Litigation history. Insurance policies. Licences held, by state or jurisdiction, with expiry dates.

Whether your structure achieves the separation a capital provider wants, and what it takes to get there, is a question for counsel. In a typical US structure, formation documents, transfer mechanics, true sale analysis and non-consolidation issues are legal determinations rather than modelling exercises, and the analysis differs across jurisdictions and structures. The same goes for accounting treatment. Whether the facility sits on or off your balance sheet, and how the assets are classified, is a question for your accountants and auditors, and their answer may shape the structure. Ask both sets of advisers before you agree structural points on a term sheet.

Set up a proper diligence room, indexed and organised by category, before you start conversations. Not a shared drive folder with inconsistent file names. Control access, log who has seen what, and keep a version history so you know which tape a given party is working from. When you send an updated tape, say what changed.

A recommended order of preparation

The sequence below is a suggested order of work, not a set of gates. Facilities get done with pieces of it incomplete, and different capital providers weight the items differently. It is offered as a way to prioritise limited preparation time.

Early, before you approach anyone:

• Named authoritative source per data category, agreed internally and written down
• A clean tape with a single stated cut-off date, current-state fields as of that date and historical fields carrying their own event dates
• A written data dictionary covering every field on the tape
• Tape to ledger reconciliation with a documented bridge
• Collections to bank reconciliation across the available history
• Cohort performance curves by origination month or quarter

Ahead of diligence starting in earnest:

• Written credit policy and exception log with exception rates by vintage
• Underwriting change log tied to cohort performance
• Servicing procedures documented, backup servicer contractual position understood
• Org chart, named role owners, documented cash controls
• Corporate documents, licences and material contracts indexed in the diligence room
• Counsel engaged on structure, accountants engaged on treatment

Before you sign a term sheet:

• Equity and fee funding plan tested against the actual proposed terms
• Reporting pack drafted and produced once as a dry run
• Systems capable of producing a borrowing base calculation on the required frequency

Notice what is not on this list. There is no minimum seasoning, no minimum origination volume, no threshold number of accounts. Those requirements exist, but they are set by individual capital providers for individual asset classes, and quoting a universal number would mean inventing one. What matters is that whatever history you have is reconciled and explicable, with missing data documented rather than hidden.

What readiness actually buys you

Anticipating the questions changes the conversation. When a capital provider asks for a cohort loss curve and receives it promptly in a usable format, with an explanation of the one vintage that looks odd, that tells them something about your operational maturity — and operational maturity is one of the inputs to how a facility gets structured and monitored.

Most of this work is unglamorous, and it is worth doing before you start pitching rather than in the middle of a process.