Common mistakes and how to avoid them

Thirty deals’ worth of failure patterns, organized by role. Every item here represents money lost, time wasted, or a relationship damaged.

The most common thread across all 30 mistakes is information asymmetry. Either the originator didn’t know something the capital provider assumed they knew, or the capital provider made assumptions about the deal they never tested. The remedy in almost every case is communication earlier than feels necessary.

The three categories of mistakes

Mistakes cluster by who makes them and when:

Originator mistakes occur during preparation and capital-raising. They’re about data quality, deal readiness, cost calculation, and relationship-building. Most can be prevented with better preparation before going to market. The originator mistakes guide covers data quality failures, engaging lawyers too early, misunderstanding cost of capital, over-promising volume, ignoring covenant headroom, underestimating closing costs, not reading documents, failing to build relationships, and underinvesting in reporting infrastructure.

Capital provider mistakes occur during diligence and structuring. They’re about falling in love with the asset class while ignoring the originator, setting triggers too tight, insufficient stress testing, overlooking servicing operations, and not planning for downside scenarios. The capital provider mistakes guide addresses these patterns with portfolio-level implications.

Deal process mistakes affect both parties during execution. They’re about timeline management, data room quality, parallel workstreams, documentation discipline, and relationship dynamics. Both originators and capital providers make these mistakes, and both pay for them. The deal process mistakes guide covers the execution failures that derail otherwise good deals.

Quick reference: all 30 mistakes

Originator mistakes

#	Mistake	Core Issue	Cost
1	Insufficient data quality	Sending tapes without data audits	3-6 week delay, 2-3 point advance rate reduction
2	No static pool history	Aggregate stats without vintage curves	Disqualifying or 10-point advance rate reduction
3	Engaging lawyers too early	Instructing counsel before term sheet	$50K-$150K in wasted legal fees
4	Not understanding cost of capital	Using headline spread as COC	Mispriced loans, negative unit economics
5	Over-promising origination volume	Covenant levels matching base case	Covenant breach, potential early amortization
6	Ignoring covenant headroom	No forward modeling of financial covenants	Technical default, required equity injection
7	Underestimating closing costs	Budget based on hearsay	$50K-$100K cash flow surprise at close
8	Not reading final documents	Relying solely on counsel review	Adverse terms discovered too late
9	Failing to build relationships early	Outreach only when capital is needed	50-100 bps wider pricing, worse terms
10	Not investing in reporting	No reporting pipeline before close	Facility freeze, potential early amortization

Capital provider mistakes

#	Mistake	Core Issue	Cost
1	Falling in love with the asset class	Originator diligence 20% of effort	30-50% higher losses, workout costs
2	Setting triggers too tight	Calibrated to average, not peak	Premature trigger breach, amendment costs
3	Not stress-testing to maturity	Stress case stops at month 18	Unanticipated workout at month 24+
4	Insufficient servicing diligence	Collections floor never visited	30-40 bps incremental loss
5	Underestimating workout costs	No explicit workout reserve	4-5% return erosion in stressed deals
6	Over-relying on rating agency analysis	Presale report as primary analysis	3%+ return shortfall from prepay assumptions
7	Not visiting operations	Deal closed on video calls only	Key-person risk undiscovered
8	Pricing without knowing COC	Quoted to win without checking hurdle	Zero margin for error, carry clawback
9	Ignoring portfolio concentration	Deals approved in isolation	Correlated stress across positions
10	Not planning for downside	No originator cessation scenario	8+ week response delay, recovery loss

Deal process mistakes

#	Mistake	Core Issue	Cost
1	Timeline underestimation	First deal timeline: 10 vs. 20 weeks	Cash runway crisis, dilutive bridge
2	Inadequate data room	Unlabeled files, no data dictionary	4-6 week diligence extension
3	Not running parallel workstreams	Sequential counterparty setup	6-8 weeks unnecessary delay
4	Letting documentation drag	No milestones or issues list	14+ weeks on document negotiation
5	Not reading final documents	No term sheet vs. docs reconciliation	Provisions changed without notice
6	Surprising your capital provider	Material changes disclosed late	6+ week renegotiation, 50 bps wider
7	Changing terms after IC	No change control process	Compliance issues, unrecoverable losses
8	Underestimating setup time	Account opening week before close	3+ week closing delay
9	Not budgeting closing costs	Setup costs not in return calculation	3+ year breakeven on deal
10	Treating deal as one-time	Adversarial negotiation	Lost long-term relationship

How to use these guides

If you’re an originator preparing for your first warehouse: Start with the originator mistakes guide. Focus on Mistakes 1-4 (data quality, static pools, legal timing, cost of capital) before going to market. Review Mistakes 5-6 (volume and covenant headroom) before signing term sheet. Mistakes 7-10 during documentation and close.

If you’re a capital provider evaluating a new deal: Review the capital provider mistakes guide alongside your diligence checklist. Mistakes 1, 4, and 7 (originator focus, servicing, site visits) apply to diligence. Mistakes 2-3 and 5-6 (triggers, stress testing, workout costs, rating reliance) apply to structuring and IC. Mistakes 8-10 (pricing, concentration, downside planning) apply to portfolio management.

If you’re in deal execution: Both parties should review the deal process mistakes guide at term sheet. Set timeline expectations together (Mistake 1). Build the data room properly (Mistake 2). Run parallel workstreams (Mistake 3). Establish documentation discipline (Mistakes 4-5). Commit to early disclosure (Mistake 6). Remember this is a relationship, not a one-time transaction (Mistake 10).

The information asymmetry pattern

Most mistakes share a common root: one party knew something the other didn’t, or assumed the other knew something they didn’t.

Originators assume capital providers:

Understand their business model from a deck
Will accept data gaps and explain what’s needed
Have flexible timelines
Will negotiate fairly

Capital providers assume originators:

Have institutional-quality data and reporting
Understand the capital raising process
Have read and understood deal documents
Will disclose problems proactively

Both assumptions are often wrong. The remedy is communication earlier and more frequently than feels necessary:

Share data before it’s requested
Disclose issues before they’re discovered
Ask questions before assumptions become problems
Build relationships before you need them

Preparing your data room addresses data quality and organization
The economics of ABF for originators covers cost of capital calculations
Covenants provides covenant structure and headroom guidance
Triggers, tests, and performance events covers trigger calibration
Deal process overview provides timeline and workflow guidance