What Lenders Want in a Financial Model

What do lenders and investors want from a financial model?

Lenders and investors want a model that lets them test your plan for themselves: three linked statements, a clear assumptions sheet, drivers based on real data, scenarios and sensitivities, and a cash view showing runway and covenant headroom. It must also reconcile to your historic accounts, or little else in it will be believed.

The two kinds of funder read the same model with different questions in mind.

How a lender and an equity investor read the same model
What they want to know	Lender	Equity investor
The core question	Can the business pay interest and repay on time, even in a bad year?	How large could the business become, and how far will this money take it?
Where they look first	Cash flow, debt schedule, security, covenants	Revenue drivers, margins, the cost of winning customers, runway
What worries them	Thin headroom in the downside case	A steep forecast with no driver behind it

A good model answers both without needing a separate version for each audience. Our financial modelling and fundraising preparation is built around exactly these checks.

Why do funders expect three linked statements?

Funders expect a profit and loss account, balance sheet and cash flow statement that are linked, so a change in one flows through to the others. Linking proves the numbers hold together: the balance sheet balances, the cash on it matches the cash flow statement, and profit reconciles to cash.

A profit-only forecast hides what actually sinks companies: customers paying late, stock building up, equipment purchases, loan repayments. The linked balance sheet catches each of them through working capital, fixed assets and debt. If it doesn't balance, many readers stop right there.

Monthly periods are normal for the first one to two years, then quarterly or annual periods to the end of the forecast, often three to five years out. Keep the layout close to your statutory or management accounts, so a reader can compare them line by line.

What makes a good assumptions sheet?

A good assumptions sheet puts every input in one place, apart from the calculations, with a label, a unit and a source for each. Drivers should tie to something real: current customers, pipeline, prices, headcount plans, supplier terms. Change one input and the effect should show up everywhere it belongs, without anyone editing a formula.

Inputs are kept apart from formulas and colour-coded, so no number is ever typed into a calculation cell.
Every assumption has a source: last year's figures, a signed contract, a supplier quote or a clearly labelled management judgement.
Revenue is built from drivers, such as volume and price or customers and average spend, not from a percentage uplift applied to last year.
Costs follow activity: headcount by role and start date, variable costs tied to sales, overheads that step up as the business expands.
Working capital is set in days (customer days, supplier days, stock days) and compared with what the business achieves today.

Funders hold each driver up against your history and against what's normal in your sector. Consider a fictional case: the model assumes customers pay in 30 days, while the sales ledger shows they currently take 58. The lender resets it to 58, watches the cash line drop, and starts to wonder what else is optimistic. Either explain what will change, such as new contract terms or a move to direct debit, or forecast the days you actually get.

How should a model show scenarios, runway and covenants?

A model should include at least a base case and a downside case, plus sensitivities on the few drivers that matter most, such as volume, price, margin and payment days. For each case it should show cash runway, the peak funding need and headroom against any loan covenants, period by period.

Scenarios and sensitivities

A scenario changes several assumptions together to tell one coherent story: a slower launch, a lost key customer, dearer materials. A sensitivity moves one driver at a time to show which ones matter most. Use a switch on the assumptions sheet to move between cases, rather than keeping several copies of the file that slowly drift apart.

Cash runway and funding need

Runway is the number of months the business can operate before cash hits zero, or your minimum cash level, without new money. Show it for every scenario. The lowest point on the cash line tells a funder how much you really need and when. Build in a margin, because raising money nearly always takes longer than planned.

Covenants

If you have a loan or want one, model the tests a lender is likely to apply, such as interest cover, debt relative to earnings or a minimum cash balance, on the dates they'd be tested. Headroom in the downside case persuades far more than headroom in the base case alone.

Why must the model match your historic accounts?

The model must start from your actual numbers, because funders check the first forecast periods against your latest accounts and bank statements. Opening balances should match the last balance sheet, and margins, costs and payment days should follow on from recent results, with any change explained. A visible break between history and forecast erodes trust quickly.

Show two to three years of history, or everything you have if the company is younger, in the same layout as the forecast, plus this year's management accounts to date. Where you've adjusted history, for example to strip out a one-off cost, show the adjustment openly rather than presenting the cleaned figures as the originals.

The first months of the model should also agree with your short-term cash view. Our guide to the 13-week cash flow forecast shows how to build one, and our cash flow and treasury work can keep the two in step.

What are the most common financial model mistakes?

The most common mistakes are a balance sheet that doesn't balance, numbers typed into formulas, revenue driven by a growth rate instead of real drivers, missing tax and working capital, a single optimistic case, and a forecast that doesn't connect to the historic accounts. Any one of them gives a funder a reason to doubt the rest.

A balance sheet that doesn't balance, or a hidden plug figure that forces it to.
Hard-coded numbers inside formulas, so changing an assumption doesn't update everything it should.
The hockey stick: flat history, then a steep climb with no driver to explain the turn.
Costs that stay flat while revenue multiplies, with no extra staff, systems or premises.
Tax missing or on the wrong dates, and working capital ignored altogether.
A single case, with no downside and no sensitivities.
Needless complexity: dozens of tabs, circular references and macros only the author understands.
Figures that don't match the pitch deck or business plan sitting next to the model.

How do you check a lender or investor is genuine?

Check a lender or investor before you share detailed information or pay anything. Confirm they're authorised or registered where the law requires it, using the register's own contact details rather than those they give you. A demand for an upfront due diligence, insurance or release fee to unlock guaranteed funding is a classic scam sign.

Advance-fee and fake-investor scams

In an advance-fee scam, a so-called lender or investor approves your company quickly, with very little scrutiny, then asks for a payment before the money can be released. It may be called a due diligence fee, an insurance premium, a legal cost or a tax. Pay it and another fee appears; the funding never does. Fake investors posing as funds or family offices work the same way, and some are really after your company's data and bank details.

Genuine funders charge fees too, but those fees are set out in a written offer from a firm you've verified, and are usually paid to independent parties such as lawyers or valuers, or deducted at completion.

Funding is guaranteed, or approved before anyone has looked at your accounts or model.
A fee must be paid before funds are released, especially to an individual, an unrelated company or an account abroad.
You're pushed to decide quickly, or offered terms far better than anyone else has put on the table.
Contact happens only through mobile numbers, messaging apps or webmail addresses, and nobody will meet you.
The name is a near-copy of a well-known bank or fund, or the paperwork is thin on detail.

How to verify a lender or investor

If the activity is regulated where the firm operates, find it on the regulator's public register and check the name, address, permissions and any warnings.
Look the firm up on the company register: when it was formed, who its directors are, whether it files accounts.
Contact it through details from the register or another independent source, never the email or phone number in the approach.
For an investor, ask which companies it has backed, then contact those companies directly.
Share the full model and data only after these checks, and under a confidentiality agreement.
Pay nothing to unlock funding until the checks are done and the fee is in a signed agreement with the verified firm.

For more on registers, clone firms and pressure tactics, see how to check an investment firm and the red flags of investment fraud.

Where can you check a funder?

The public register of the financial regulator in the funder's country, if lending or investing is regulated there.
The regulator's warning list, and any international warning search run by groupings of securities regulators.
The official company register in the funder's country: when the company was formed, its directors and its filing history.
Public-sector guidance on business finance in your own country, to compare an offer with what is normally available.

Check a funder with the regulator and company register of the country where it says it operates.

How can BrndTst help?

BrndTst helps you build or review a financial model that lenders and investors can test: linked statements, a clear assumptions sheet, scenarios, runway and covenant checks. We can also check a funder before you sign anything. We take no success fee or share of what's raised, so our fee doesn't depend on the deal closing.

We won't promise that funding will be granted; nobody honest can. The model and the funding pack come from our financial modelling and fundraising preparation service, and if the model shows a gap you could close without new money, our cash flow and treasury service starts there instead. Get in touch with the amount you're thinking of raising and your timetable.