Venture Debt Drawdown Checklist

Pre-Drawdown Conditions Precedent

• All conditions precedent (CPs) listed and confirmed satisfied with lenderPrepare a CP checklist extracted from the facility agreement. Mark each CP as satisfied and obtain written confirmation from the lender that all CPs have been met before submitting the drawdown notice.
• Board resolution approving the facility and authorising the drawdown — formal minutesA formal board resolution is required. The minutes must authorise the specific drawdown amount, the borrowing entity, and identify the authorised signatories for the drawdown notice. Keep this document in the company's statutory records.
• Borrowing entity confirmed: correct legal entity named in facility agreementConfirm the legal entity named in the facility agreement is the correct borrowing entity. Where the group has multiple entities, the facility must be drawn by the entity with the appropriate assets and revenue to service the debt.
• Financial statements delivered: audited accounts, management accounts as required by CPMost venture debt facilities require delivery of specified financial statements as a CP. Confirm the statements delivered match the requirement in the facility agreement exactly — wrong period, wrong format, or unaudited accounts where audited are required will breach the CP.
• Material adverse change (MAC) clause reviewed: confirm no MAC event has occurredThe drawdown notice typically includes a representation that no MAC event has occurred. Review the MAC definition in the facility agreement and confirm with legal counsel that the current business position does not meet the MAC threshold.
• No event of default: review all financial covenants — confirm compliance at drawdown dateCalculate every financial covenant in the agreement as at the drawdown date. A covenant breach existing at drawdown is an immediate event of default — the lender can demand repayment of the full facility amount on day one.
• Account charges / debentures: security documents signed and filed at Companies HouseVenture debt is typically secured by a debenture over the company's assets. Confirm the debenture is signed, executed and filed at Companies House before drawdown. An unfiled debenture may be void against a liquidator.

Financial Covenant Calculations

• Recurring revenue covenant: calculate trailing 3-month or 6-month ARR vs covenant thresholdExtract the exact recurring revenue covenant from the agreement and calculate compliance using the specified methodology. ARR definitions vary — confirm whether it is annualised MRR, contracted ARR, or another definition specified in the agreement.
• Cash covenant: minimum cash balance covenant — confirm current position with headroomCalculate the minimum cash balance at drawdown date and compare to the covenant threshold. Document the headroom and set an internal warning trigger at 80% of the covenant level to allow time to act before a breach occurs.
• Burn rate covenant (if applicable): net burn vs covenant level calculatedWhere the facility includes a burn rate covenant, calculate net burn using the methodology specified in the agreement. Net burn definitions can differ — confirm whether it is a trailing average or a point-in-time calculation.
• Revenue growth rate: if applicable, growth rate calculated for relevant measurement periodWhere the agreement includes a minimum revenue growth rate covenant, calculate the rate using the specified methodology. Confirm the measurement period — some agreements use LTM, others use YTD vs prior YTD, and some use rolling quarterly comparisons.
• Interest coverage: if EBITDA covenant applies, current EBITDA tested against thresholdCalculate EBITDA using the facility agreement's definition — adjustments for non-cash charges, exceptional items, and capitalised costs vary significantly between agreements. Use the contractual definition, not the management accounts definition.
• Reporting obligations: confirm what financial information must be delivered and whenExtract the full reporting obligation schedule from the agreement. Prepare a calendar of all financial reporting due dates — monthly management accounts, quarterly covenant compliance certificates, annual audited accounts. Missing a reporting deadline is a technical default.

Drawdown Mechanics

• Drawdown notice submitted to lender on time (typically 3–5 business days notice)Most venture debt facilities require 3–5 business days notice before drawdown. Submit the drawdown notice in the form specified in the agreement — the wrong format or missing information can delay or invalidate the drawdown.
• Drawdown amount confirmed: tranches, timing, and any milestones to unlock future tranchesConfirm the drawdown amount and, where the facility is structured in tranches, identify the milestones or conditions required to draw subsequent tranches. Load the tranche timeline into the financial model and cash flow forecast.
• Interest payment calculation: first interest payment date, rate (base + margin), payment mechanicsCalculate the first interest payment: rate (base rate + margin), accrual start date, payment date, and payment mechanics. Set up the payment in the banking system before the first payment date to avoid a technical default.
• Warrant dilution: any equity kicker calculated — shares to be issued to lender at drawdownMany venture debt facilities include a warrant over new shares as an equity kicker. Calculate the number of shares to be issued, the strike price, and the dilutive impact on the cap table. Update the cap table and obtain board approval for the warrant issuance.
• Use of proceeds: facility agreement confirms permitted uses — confirm spend plan is compliantVenture debt is often subject to restrictions on permitted uses of proceeds. Review the use of proceeds language in the agreement and confirm the planned spend is within the permitted categories. Misapplication of proceeds can constitute a breach.

Accounting Treatment

• Facility recorded as a financial liability at amortised cost (IFRS 9 / FRS 102)The drawn facility should be recognised as a financial liability at amortised cost under IFRS 9 (or the equivalent under FRS 102). The initial carrying amount is the fair value of cash received less directly attributable transaction costs.
• Transaction costs (arrangement fees, legal fees) capitalised and amortised over termArrangement fees and directly attributable legal costs are deducted from the initial carrying amount of the liability and amortised using the effective interest method. Do not expense these costs in full in the period of drawdown.
• Warrant fair value calculated and bifurcated from debt instrument if materialWhere warrants are issued as part of the facility, the fair value of the warrants must be calculated (using Black-Scholes or a comparable method) and recognised as equity with a corresponding reduction in the debt carrying amount. This affects the effective interest rate calculation.
• Effective interest rate disclosed in financial statements footnotesThe effective interest rate (EIR) must be disclosed in the financial statements notes. The EIR will differ from the contractual interest rate where transaction costs or warrant values have been deducted from the initial carrying amount. Calculate and document the EIR at drawdown.

Ongoing Monitoring

• Covenant compliance report: prepared monthly and sent to lender within agreed timeframePrepare a covenant compliance certificate in the form required by the agreement every month. Do not rely on informal conversations with the lender — formal compliance reporting protects the company if a dispute arises later about whether a breach was notified.
• Covenant breach early warning: trigger set at 80% of threshold — management notified immediatelySet internal early warning triggers at 80% of each covenant threshold. When a metric reaches the trigger level, the CFO must immediately notify management and begin planning — either to cure the developing breach or to engage the lender proactively.
• Lender relationship: regular update calls — transparent communication before problems escalateVenture lenders expect regular relationship calls, not just formal reporting. Communicating proactively about business challenges — before they become covenant issues — is the single most effective way to preserve lender goodwill and avoid waivers being withheld.
• Repayment schedule: amortisation profile loaded into cash flow model and 13-week forecastThe full repayment schedule — principal and interest — must be loaded into the financial model and the 13-week cash flow forecast. Principal repayment is a significant cash outflow that must be reflected in all runway calculations.
• End of interest-only period: trigger date in calendar — principal repayment beginsMany venture debt facilities include an interest-only period of 12–18 months before principal repayment begins. Set a calendar reminder 6 months before the end of the interest-only period to begin planning for the cash impact of principal payments.