What does a bank look for during refinancing due diligence?

  • Posted by: Frédérique Pardon

During refinancing due diligence process and assessment, banks examine your financial health, debt structure, cash flow reliability, and management quality to assess whether they can confidently extend or restructure your credit facility. The goal is straightforward: they want evidence that your business can service the new debt under realistic conditions. This article walks through exactly what banks look for, what can slow or derail an application, and when it makes sense to bring in outside expertise.

What financial documents do banks request during refinancing due diligence?

Banks typically request three to five years of audited annual accounts, recent management reports, a current business plan with financial forecasts, and a detailed overview of your existing debt structure. These documents form the factual foundation of their credit assessment and allow underwriters to verify both historical performance and forward-looking viability.

Beyond the headline financials, expect requests across several categories:

  • Financial statements: Audited annual accounts, interim management accounts, and month-by-month P&L and balance sheet data
  • Cash flow documentation: Historical cash flow statements and a rolling 12-month cash flow forecast
  • Debt and covenant overview: Current loan agreements, outstanding balances, interest schedules, and any existing covenant obligations
  • Tax filings: Corporate income tax returns, VAT filings, and any rulings or agreements with tax authorities
  • Legal documentation: Shareholder agreements, incorporation deeds, and any material contracts with customers or suppliers
  • Business plan: A forward-looking plan that includes assumptions, growth strategy, and scenario analysis

The key principle here is completeness and consistency. Banks are not just checking whether the numbers look good; they are checking whether your documentation is organized, current, and internally consistent. Gaps or outdated documents immediately raise questions about how well the business is managed. Keeping a structured virtual data room, organized by category and consistently dated, dramatically speeds up this phase of the process.

How do banks assess cash flow and debt serviceability?

Banks assess cash flow and debt serviceability by calculating whether your business generates enough free cash flow to cover interest payments, principal repayments, and operational needs, with a meaningful buffer. The central metric is the Debt Service Coverage Ratio (DSCR), which compares operating cash flow to total debt service obligations. A DSCR above 1.25 is generally considered the minimum threshold for most lenders.

In practice, banks look beyond a single ratio. They examine the quality and consistency of cash flows: are revenues recurring or project-based? How seasonal is the business? What is the working capital cycle? A company with strong average cash flows but high volatility is viewed differently from one with steady, predictable inflows.

Banks also stress-test your forecasts. They will apply downside scenarios, reduced revenues, margin compression, rising interest rates, to see whether debt service remains manageable under pressure. If your forecasts assume aggressive growth without clearly articulated assumptions, underwriters will apply their own, more conservative numbers. Presenting well-documented, scenario-based forecasts rather than a single optimistic projection signals that management has a realistic grip on the business.

What credit metrics matter most to a bank’s underwriting team?

The credit metrics that matter most during refinancing due diligence are leverage ratio (net debt to EBITDA), interest coverage ratio, DSCR, and liquidity ratios. Together, these give the underwriting team a structured picture of how much debt the business carries relative to its earnings and whether it has the financial headroom to absorb shocks.

Leverage and coverage ratios

Net debt to EBITDA is typically the anchor metric. Most banks have internal thresholds, commonly between 3x and 5x depending on the sector and credit profile, above which they become uncomfortable. The interest coverage ratio (EBIT divided by interest expense) is equally important: a ratio below 2x is often a warning sign. These ratios are assessed both on a historical basis and on projected figures, so your forecast assumptions will be scrutinized closely.

Liquidity and working capital

Banks also examine current ratio and quick ratio to assess short-term liquidity, alongside working capital trends. A deteriorating working capital position, even in a profitable business, can indicate cash flow pressure that the income statement does not reveal. Underwriters want to see that the business can meet its short-term obligations without relying on the refinancing facility itself to stay liquid.

How does a bank evaluate management quality and business risk?

Banks evaluate management quality by assessing whether the leadership team has the experience, track record, and organizational depth to execute the business plan and navigate challenges. This is a qualitative judgment, but it is taken seriously, particularly for mid-market companies where the business is closely tied to one or two key individuals.

Specific factors that banks consider include:

  • Track record: Has the management team delivered on previous plans? Are there explanations for past deviations from budget?
  • Key person risk: Is the business overly dependent on a founder or single executive? What succession or backup arrangements exist?
  • Financial governance: Is there a capable CFO or finance function? Are reporting processes robust and timely?
  • Market and competitive position: How defensible is the revenue base? Are there customer concentration risks or contract dependencies?
  • Operational resilience: Does the business have documented processes, or does knowledge sit informally with individuals?

Banks are also assessing business risk more broadly: sector dynamics, regulatory exposure, and the sustainability of the business model. A company operating in a structurally declining market will face harder questions than one in a growing sector, regardless of recent financial performance.

What causes banks to reject or delay a refinancing application?

Banks reject or delay refinancing applications most commonly due to incomplete documentation, weak or inconsistent financials, covenant breaches on existing debt, or insufficient evidence that the business can service the new facility. Delays are often caused by disorganized data rooms that require multiple rounds of follow-up requests.

The most avoidable causes of delay include:

  • Providing outdated financial statements or forecasts that do not reflect the current state of the business
  • Presenting forecasts without clear, documented assumptions
  • Failing to disclose existing covenants, legal disputes, or tax issues upfront
  • Inconsistencies between different documents, for example, a business plan that does not align with the management accounts
  • Weak financial governance, such as the absence of a qualified CFO or a finance function that cannot produce reliable monthly reporting

Outright rejections typically follow from more structural issues: leverage that is too high relative to earnings, a business model the bank does not understand or trust, or a management team that cannot credibly defend the plan during meetings. Addressing these issues before submitting an application, rather than during the process, is always the better approach.

When should a company bring in a CFO or financial advisor for refinancing?

A company should bring in a CFO or financial advisor for refinancing as soon as the process is on the horizon, ideally three to six months before the planned application. The preparation phase is where the most value is created: organizing documentation, stress-testing forecasts, identifying and resolving potential red flags, and structuring the narrative around the numbers.

The case for external support is strongest when:

  • The company does not have a dedicated CFO or the internal finance function lacks bandwidth
  • The refinancing involves complex structures, multiple lenders, or covenant renegotiation
  • Previous applications have been delayed or rejected due to documentation gaps
  • Management wants to negotiate better terms and needs a credible financial counterpart to the bank’s team
  • The business is going through a significant transition, new ownership, rapid growth, or restructuring, that makes the financial story harder to tell

An experienced financial advisor and expert services does more than organize paperwork. They anticipate the questions a bank’s underwriting team will ask, ensure the documentation is internally consistent, and help management present the business in a way that builds confidence rather than raising doubts. In a refinancing process, that preparation can be the difference between a smooth approval and a drawn-out negotiation.

How Greyt supports your refinancing due diligence

Refinancing is a high-stakes process, and the quality of your preparation directly affects both the outcome and the terms you secure. We help growing companies get this right, from the first document review to the final bank meeting.

Our refinancing due diligence service is built around a CFO-led approach that covers:

  • Financial health assessment: A thorough review of your cash flow, debt structure, and key credit metrics to identify strengths and address weaknesses before the bank does
  • Documentation and data room setup: Organizing your financial, legal, tax, and commercial documentation into a structured, bank-ready format
  • Forecast review and stress testing: Ensuring your projections are credible, well-documented, and defensible under scrutiny
  • Negotiation support: Providing an experienced financial counterpart who can engage directly with the bank’s team on your behalf
  • Fractional CFO support: For companies without a full-time CFO, we can step in on a flexible basis to lead the entire process

We work with founders, CFOs, and finance teams at scale-ups and mid-market businesses across the Netherlands. If you are preparing for a refinancing and want to make sure you are ready, reach out to our team and we will tell you where you stand.

Frequently Asked Questions

How long does the refinancing due diligence process typically take from start to finish?

The timeline varies depending on the complexity of the deal and the quality of your preparation, but most refinancing processes take between two and four months from initial application to final approval. Companies that enter the process with a well-organized data room, up-to-date financials, and a clearly documented business plan tend to move significantly faster. Delays almost always stem from back-and-forth document requests, which is why preparing thoroughly before submitting anything to the bank is time well spent.

Can we refinance if our DSCR is currently below the 1.25x threshold?

A DSCR below 1.25x does not automatically disqualify you, but it will require a stronger narrative and additional supporting evidence. Banks may still proceed if there are clear, credible reasons for the temporary shortfall — such as a one-off investment cycle or a recent acquisition — and if your forward-looking forecasts demonstrate a credible path back above the threshold. In these situations, having a financial advisor help you structure and document the explanation is particularly valuable, as the quality of the story around the numbers matters as much as the numbers themselves.

What is the difference between refinancing due diligence and a standard loan application?

A standard loan application is typically a lighter-touch process focused on creditworthiness for a new facility, whereas refinancing due diligence involves a deeper review of your existing debt structure, covenant history, and the performance of your business against previously stated plans. Banks refinancing an existing relationship will also scrutinize whether you have met prior commitments and how transparently you have communicated any issues along the way. The bar for documentation depth and management credibility is generally higher in a refinancing context.

How should we handle existing covenant breaches when approaching a bank for refinancing?

Transparency is essential — attempting to minimize or obscure a covenant breach will almost always backfire during due diligence and can permanently damage the bank's trust in management. The right approach is to disclose the breach proactively, provide a clear explanation of what caused it, and present concrete steps already taken or planned to resolve it. Banks are experienced at working through these situations; what they are really assessing is whether management handles problems honestly and competently.

What common mistakes do companies make when preparing their financial forecasts for a refinancing?

The most frequent mistake is presenting a single, optimistic scenario without documented assumptions or sensitivity analysis — underwriters will simply replace your numbers with their own, more conservative ones. Other common errors include using forecasts that are inconsistent with recent management accounts, failing to account for the cost of the new debt facility in the projections, and not addressing how the business performs under downside conditions. A well-prepared forecast explicitly states its key assumptions, shows at least two scenarios, and reconciles clearly with historical performance.

Does the size of our company affect what banks expect during due diligence?

Yes, expectations scale with company size and complexity. Smaller businesses may face more scrutiny around key person risk and the robustness of their finance function, while larger mid-market companies will typically encounter more detailed questions about governance structures, group-level consolidation, and multi-entity debt arrangements. Regardless of size, the core expectations around documentation quality, cash flow transparency, and management credibility remain consistent — what changes is the depth and sophistication of the analysis banks apply.

Should we approach multiple banks simultaneously or work exclusively with our existing lender?

Running a competitive process with multiple lenders almost always results in better terms, even if you ultimately stay with your existing bank. Your current lender may offer familiarity and speed, but they have no incentive to sharpen their pricing or covenant structure unless they know alternatives are on the table. That said, managing multiple bank relationships in parallel requires strong coordination and a consistent, well-prepared information package — another area where having a financial advisor or experienced CFO on your side adds tangible value.

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