Borrowers under-ask. Partly because a funding process feels like an evaluation of them rather than a two-sided transaction, and partly because by the time documents arrive there is relief in the room and a reluctance to introduce friction. Both instincts cost money. A lender that has spent weeks underwriting a file wants it to close, and a specific question at signing is far less disruptive than a dispute in month fourteen.
The questions below are grouped by what they protect: your cash, your flexibility, your ability to borrow again, and your ability to comply. None of them are adversarial. Every one has an answer that already exists in the documents or in the lender's policy, and asking simply moves it into a place where you can read it before you are bound by it.
Money questions
The first group establishes what the facility actually costs and what you actually receive. All of these should be answered in dollars, not percentages, and in writing.
- What are my net proceeds after every fee, escrow, prepaid item and required payoff?
- What is the complete list of fees, including any that recur annually?
- Which third-party costs do I owe if this does not close?
- What is the total of all payments over the full term at the quoted structure?
- Is any interest prepaid or netted from proceeds at funding?
- Are there charges for wire transfers, servicing, statements or payoff quotes?
The last one sounds trivial and is not. Fees on routine servicing events accumulate quietly across a multi-year facility, and they are almost never discussed at signing because nobody thinks to raise them.
Payment questions
The second group establishes what leaves your account, when, and by what mechanism. Payment mechanics affect liquidity management more than the rate does.
- What is the exact payment amount, and is it fixed or does it adjust?
- How often is it drawn (monthly, weekly, daily) and on which day?
- Is payment by automatic debit, and can I control which account it draws from?
- When is the first payment due, and is there any interest-only period?
- What is the amortization, what is the term, and if they differ, what is the balloon amount and date?
- What happens if a payment is late: what is the grace period, the late fee, and does a default rate apply?
- If the rate floats, what index, what spread, how often does it reset, and is there a floor or a cap?
Exit questions
The third group is about ending the relationship: refinancing, selling, or paying off early. These terms are set at signing and are essentially unnegotiable afterward, which is precisely why they get skipped.
- Can I prepay in full, and what does it cost at year one, year two and year three?
- Is there a lockout period during which prepayment is not permitted at all?
- Can I make partial prepayments, and do they reduce the term or the payment?
- If I sell the business or the collateral, is the facility assumable or does it accelerate?
- How long does a payoff quote take, and is there a fee for one?
- Are lien releases issued automatically on payoff, or do I have to request each one?
That last question is worth more than it appears. Filings that are satisfied but never terminated are a recurring cause of delay in future transactions, and the time to establish who handles the termination is before you need the collateral clean.
Control questions
The fourth group determines what you can do with your business while the facility is outstanding. Covenants are not merely tests you might fail; several of them restrict ordinary decisions.
- What financial covenants apply, at what thresholds, and how often are they tested?
- What happens on a covenant breach: a cure period, a fee, a rate increase, or acceleration?
- Am I restricted from taking on additional debt, and if so above what amount?
- Am I restricted from taking distributions, and under what conditions?
- Exactly what collateral is pledged, and is there any cross-collateralization with other facilities?
- Is there a cross-default provision linking this to any other obligation I hold?
- Can I sell or replace an individual pledged asset, and what is the release process?
- What reports are required, in what format, and by what deadline after each period?
Reporting covenants cause more technical defaults than financial ones. Every payment can be current and a facility can still be in default because two quarterly statements were never sent. Get the list, get the deadlines, and calendar them before signing rather than filing the documents and hoping to remember.
Guarantee questions
Where a personal guarantee is involved, the scope deserves the same reading as the note itself.
- Who is required to sign, and is any spouse required to sign?
- Is the guarantee unlimited, or capped at a stated amount?
- With multiple guarantors, is liability joint and several or several only?
- Does the guarantee release automatically at payoff, and does anything survive?
- Is there a burn-off provision that releases the guarantee after defined performance?
- Does the guarantee extend to future advances or only this facility?
Counterparty and process questions
Finally, a short group about who you will actually be dealing with once the money moves, and what remains between here and there.
- Who services this facility after closing, and is servicing likely to transfer?
- Who do I call about a payment problem, and who has authority to grant a modification?
- What conditions remain outstanding, and who produces each one?
- When does this offer expire, and what happens if a third-party item pushes past that date?
- What could still change the terms between now and funding?
- How and when will funds be disbursed, and to whom: me, or directly to payoffs and vendors?
What the answers should look like
| Question | A workable answer | An answer that needs a follow-up |
|---|---|---|
| What are my net proceeds? | An itemized figure in dollars, in writing | Roughly the loan amount minus a couple of points |
| What does prepayment cost? | A stated schedule by year, with the calculation explained | We can discuss that when the time comes |
| What covenants apply? | Named tests, thresholds and testing frequency | Nothing unusual, standard terms |
| What reports are required? | A list with formats and deadlines after each period | The usual annual financials |
| Is there a cross-default? | A direct yes or no, with the clause identified | Only in a default scenario |
| What is left before funding? | A named list with an owner for each item | Just a few things on our end |
The pattern in the right-hand column is vagueness where a document already contains a specific answer. That is not necessarily evasion. It is often a busy person summarizing. The correct response is the same either way: ask where in the documents it appears, and read that section.
The signing-day pass
Before signature
- Confirm the payment amount, frequency, first payment date and draw account.
- Confirm net proceeds in dollars and how funds will be disbursed.
- Confirm the balloon amount and date, if the term is shorter than the amortization.
- Confirm the prepayment cost at the year you realistically expect to exit.
- Read the covenant section and the events-of-default section in full, not the summary.
- List every reporting deadline and put each one on a calendar with a reminder.
- Confirm exactly what is pledged and check for cross-collateral and cross-default language.
- Confirm every guarantor, the scope of each guarantee, and any release condition.
- Confirm what the loan documents say matches what the term sheet said, line by line.
- Verify wire instructions by phone using a number you already had, never one supplied in an email.
- Keep a complete signed set, including all exhibits and schedules, in your own records.
Will asking a lot of questions make me look difficult?
No. Analysts and closers deal with borrowers who ask nothing and are surprised later, and it creates far more work than a careful borrower does. Specific questions with reference to the documents read as competence. Vague suspicion or last-minute renegotiation of settled terms is what creates friction.
When is the right time to ask: term sheet or closing?
Both, with different aims. At term sheet, ask about structure and economics while they are still adjustable. At closing, verify that the documents match what was agreed and read the covenant and default sections in full. Questions that only surface at signing about economics are the hardest to resolve, because everything has been priced around them.
Do I need a lawyer to review loan documents?
For a straightforward facility with familiar terms, a careful read against the checklist above catches most issues. Counsel is worth the fee where there is cross-default language, unusual collateral arrangements, a confession of judgment or similar instrument, a guarantee structure you do not fully understand, or a facility large enough that the cost of counsel is small relative to the exposure.
The loan documents differ from the term sheet. Is that normal?
Some drift is normal, because a term sheet is a summary and final documents are specific. Material differences in payment, term, fees, collateral or guarantee scope are not, and they should be raised before signing rather than accepted as inevitable. Compare the two side by side; that comparison is the point of keeping the term sheet.
What is a technical default and should I worry about one?
It is a breach of a non-payment obligation: a missed report, a lapsed insurance policy, a covenant test failed, an unreported ownership change. It matters because it can permit acceleration or a rate increase even while payments are current. Most are entirely preventable with a calendar, which is why the reporting list belongs on one before you sign.
Can I negotiate covenants?
Frequently more than economics, and it is worth trying. Threshold levels, testing frequency, cure periods and reporting deadlines are all things desks adjust when a borrower explains why a particular test is impractical for their business. Asking for a realistic reporting deadline at signing is much easier than asking for a waiver after missing one.
What should I do if I cannot get a straight answer?
Ask where in the documents the answer appears and read that section yourself. Every question in this article has an answer somewhere in the paperwork. If a term genuinely cannot be located or explained, that itself is information worth weighing before signature.
Is there one question that matters most?
What is the exact payment, at what frequency, and what does my coverage look like with it included? That single line determines whether the business can carry the facility through a bad quarter. Everything else shapes cost and flexibility; that one determines whether the structure is livable.
Where to start
Print the five groups above and take them into your next conversation. Ask the money and payment questions at term sheet, the exit and control questions before documents are drawn, and run the signing-day checklist with the executed set in front of you. It costs an hour spread across the process and it is the cheapest diligence available to a borrower.
If you have not received an offer yet, the questions are still the right preparation: they tell you what to look for, and they tell you which program characteristics matter for your situation before anyone quotes you anything. Establishing what the money is for and what secures it is where that starts.
Qualified Commercial Underwriting Desk
Credit and capital markets
The Qualified Commercial underwriting desk reviews commercial real estate, dealer and Main Street files daily. The Academy is written from that work (how files are actually read, priced and declined) rather than from a rate sheet.
Educational content only. Nothing here is a commitment to lend, an offer of credit, or tax, legal or accounting advice. Program terms, timelines and thresholds vary by lender, file and market conditions, and any figures shown are illustrative.