What a lender looks for in a feasibility study

Many feasibility studies are written to persuade the sponsor. Lenders read them to find the weak point. A study that does not anticipate a credit committee's questions will either be sent back or priced as a higher risk. Five things separate a study a bank can work with from one it will not.

1. Demand evidence that does not depend on the sponsor

A lender wants to know that the market exists independently of the sponsor's conviction. That means primary research (interviews with customers, distributors or operators), credible secondary data, and a clear line from market size to the project's own volumes. Market share assumptions are where most studies are weakest: a lender will ask why this project will win that share, and from whom.

2. Assumptions a lender can test

Every revenue and cost line should trace back to a stated assumption with a source: a benchmark, a quote, a signed letter of intent. Assumptions buried inside formulas, or justified only as "management estimate", invite the credit team to replace them with their own, usually more cautious, numbers.

3. A downside case that is genuinely downside

A sensitivity table that moves revenue by five percent either way does not answer the lender's real question: what happens if things go wrong? A useful downside case delays the ramp-up, lowers prices and raises costs at the same time, then shows whether the project can still service its debt. If it cannot, the study should say what would need to change.

4. A financing structure that fits the cash flows

Repayments should match when the project actually generates cash. Construction periods, ramp-up years and seasonality all matter. The lender will look at debt service coverage year by year, not on average, and at what security and equity cushion support the loan in the weaker years.

In practice: one client needed significant funding for a complex project that combined capital-heavy business lines with others that mainly needed working capital. Launching all of them at once put heavy pressure on cash flow in the first three years. Re-sequencing when each business line started eased that pressure. It allowed us to show the bank the company's capacity to generate cash and service the debt, and gave us more room to defend the assumptions behind the plan.

5. A clear view of who prepared it

Lenders weigh a study by its independence. A study prepared by the sponsor's own team, or by an adviser paid on success, carries less weight than one prepared by an independent party with a clear scope and a stated basis of preparation.

Before the study goes to the bank

Three questions are worth asking internally first:

• If a credit analyst challenged our three largest assumptions, could we show where each came from?
• Does our worst case still repay the loan, and if not, what is the plan?
• Would we invest our own money on these numbers?

For the questions a board should ask before approving a study in the first place, read Five questions a board should ask before approving a feasibility study.

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