For a term loan, lenders need the target's P&L for the latest full year, never an older one, a year-to-date P&L through the last month-end, a balance sheet and a debt schedule, with an AP aging helpful; and the letter of intent. Where a revolver or asset-based line is part of the financing they add an AR aging by customer, an AP aging, an inventory report and often bank statements and tax returns. On the buyer's side they want the equity commitment and who stands behind it. A quality of earnings report usually follows the LOI.
- The target's figures
- P&L for the latest full year, year to date, balance sheet, debt schedule
- If a revolver or ABL is included
- AR and AP agings, inventory report, existing liens
- The deal
- The letter of intent, then the purchase agreement
- The buyer's side
- The equity commitment, who stands behind it, the management team
- Midas Partners's package once documents are in
- Built in a day; by hand, at least a week
The document list
This is the list Midas Partners works from for an acquisition. The core is the conventional term loan set, with the additions every acquisition needs. Where a revolver or asset-based line is part of the financing, the collateral documents join it. Items marked optional strengthen a file but do not hold it up.
| Document | Whose | What lenders use it for |
|---|---|---|
| P&L / income statement for the latest full year | Each company being bought | The earnings the loan is sized on; never an older year in its place |
| Year-to-date P&L through last month-end (optional) | Each company being bought | Whether the current year is holding up |
| Balance sheet | Each company being bought | Working capital, assets being acquired, and liabilities to deal with at closing |
| Debt schedule | Each company being bought | What is owed, to whom, with what liens, and what gets paid off at closing |
| AP aging (optional for a term loan) | Each company being bought | Whether payables are current or being stretched to flatter cash |
| Letter of intent | The deal | Price, structure, seller paper, rollover, what is included: the uses the financing has to fund |
| AR aging by customer, with days outstanding | If a revolver or ABL is included | The borrowing base, and customer concentration |
| Debt schedule / UCC position — existing liens | If a revolver or ABL is included | Which liens must be released for the new lender to take first priority |
| Inventory report (optional) | If inventory is in the borrowing base | What the inventory is and how it would be valued |
| Bank statements (optional) | If a revolver or ABL is included | Cash activity that matches the P&L |
| Business tax returns, 2–3 years (optional) | If a revolver or ABL is included | A cross-check that the statements are real |
The target's figures, and why the latest year decides
Lenders size acquisition debt on adjusted EBITDA, and they want it built from the best statements the target has: audited carries the most weight, reviewed less, internal least. The P&L matters in detail because it shows the lines where add-backs come from: owner compensation, one-time costs, related-party rent, discontinued lines. Where the statements and the returns disagree, lenders want the difference explained; see seller financials vs tax returns.
Lenders underwrite on the latest full year of figures for every company being bought, never an older one. If the year-end statements are not finished, the internal year-end P&L and balance sheet stand in until they are. A deal presented on a stronger earlier year is not a shortcut: lenders see the date, ask for the current figures, and read the substitution as a warning. Midas Partners does not take a deal to lenders on an older year when a newer one has closed.
The year-to-date P&L is the lender's check that the business is not already sliding. A strong last year followed by a softer current year is not a decline in itself, but it needs an explanation — seasonality, a large one-time project in the prior year, a lost customer — and the explanation belongs in the file before the lender asks. If earnings have fallen, see financing an acquisition with declining earnings.
A buyer rarely controls the seller's books. Asking for the latest full year and the year to date as a condition of the letter of intent saves a round of back and forth later.
The letter of intent: what lenders read in it
Without a letter of intent, lenders can talk in generalities but cannot size a financing. The LOI turns a company into a transaction, and lenders read it for specific terms:
- Price and what it buys. Whether real estate, receivables, inventory and cash are in or out changes both the uses of funds and the collateral. At this size the price is usually an enterprise value on a cash-free, debt-free basis with a working capital peg.
- Asset or stock purchase. The form decides which entity borrows, what liabilities come along and which contracts need consent to transfer; see asset purchase vs stock purchase.
- Seller paper. The seller note's amount, rate, term and subordination, and any rollover and its terms. See seller note subordination terms.
- Contingent price. Lenders will usually allow an earnout if it is subordinated; see how earnouts interact with acquisition debt.
- Transition. How long the seller stays, in what role, and whether there is a non-compete.
The purchase agreement follows the LOI, and lenders need it before they commit or close, but they issue term sheets on the LOI. The closer the LOI is to the final deal, the fewer surprises lenders find when the purchase agreement arrives.
The buyer's side
Lenders are lending into a new capital structure, so they read the buyer as closely as the target. What they want to see depends on who the buyer is:
- A private equity fund or family office shows its equity commitment and its record with similar companies. Lenders to sponsor-backed deals rarely ask for more on the buyer.
- An independent sponsor shows who its equity investors are, whether they have committed, and the sponsor's own record, because there is no fund behind the deal.
- A strategic buyer or an owner buying a competitor provides its own financial statements, because the combined company is the credit. See add-on acquisition financing.
- A management team or individual buyer shows where the equity comes from and, if the lender asks for personal guarantees, a personal financial statement.
Every buyer also answers the management question: who runs the company after closing, and who replaces what the seller did. An organization chart, the key people staying and any new hires planned carry real weight, especially where the seller held the customer relationships.
What comes after the first submission
The list above gets a deal to term sheets. Between term sheet and commitment, lenders add their own diligence, and the buyer's advisors produce the documents it rests on:
- A quality of earnings report, which tests adjusted EBITDA and normal working capital; see quality of earnings for acquisition loans.
- Projections for the next few years, which lenders use to set covenants and test headroom.
- A field exam and inventory appraisal, where an asset-based lender is providing the revolver.
- Legal diligence: material contracts, change-of-control consents, litigation, and the draft purchase agreement.
- Lien searches and payoff letters for the target's existing debt; see paying off the target's debt at closing.
What changes with more than one target
Where a buyer is acquiring several companies at once, or a platform and an add-on together, each company being bought provides its own latest full year of figures. Lenders want each company's figures shown on their own before any combined view, so they can see what each contributes and test each set of adjustments. Synergies between them are shown separately, and lenders give them little or no credit until they have happened.
Once the documents are in
Lenders do not read a pile of documents; they read a credit story built from them. Once a buyer's documents are in, Midas Partners builds the full lender package — financing model, lender presentation, blind teaser and underwriting memo — in a day. Built by hand, the same package takes at least a week. Software does the analyst work, and a senior banker checks every page before the client approves it.
The model carries the sources and uses, leverage and coverage, and the seller-note and rollover structure; the memo answers the questions a credit officer will raise before they raise them. Lenders that fit see the blind teaser first, and the client approves each lender by name before it learns who the client is. What is in each piece is on the package, and how the documents are read first is on how we underwrite.
Common questions
- Do lenders need tax returns for an acquisition?
- Not always for a term loan, which is sized on the financial statements. Asset-based lenders often ask for two to three years, and any lender may use them to cross-check the statements. It is sensible to have them ready.
- What if the seller will not share financials before the letter of intent?
- Many sellers share summary figures first and full financials after an LOI with confidentiality in place. Make the latest full year and the year to date a condition of the LOI so lenders can size the financing promptly.
- Can a lender use an older year if the latest year looks weaker?
- No. Lenders underwrite on the latest full year. If the latest year is weaker, the file should explain why, not substitute an earlier year.
- Do I need a quality of earnings report before going to lenders?
- Not before the first submission. Lenders give indicative terms on the statements and the LOI, and most will make a quality of earnings a condition of their commitment. Commissioning it after indicative terms avoids paying for one on a deal no lender will finance.
- Do I need projections?
- Lenders size on historical results, but most will ask for projections before committing, to set covenants and test headroom. They give little credit to growth that is not already contracted.