What belongs on a credit diligence checklist

Most diligence checklists start as somebody's last deal, copied. That is a reasonable place to start and a bad place to stay, because the copy carries the previous deal's assumptions without carrying the reasoning behind them.

What follows is a working reference for a senior secured facility to a UK trading company. Take the shape rather than the items: the useful part is the categorisation, not the list.

Six kinds of item, not one

The most useful thing you can do to a checklist is stop treating every line as "a document we need". There are at least six distinct kinds, and they behave differently enough that collapsing them is what makes lists unusable.

Documents. The obvious case. Statutory accounts, management accounts, facility agreements, board minutes.

Answers. A written response, not a file. "Top five customers as a percentage of revenue?" Often extractable from a document you already have, which is the point — an answer-type item should be checked against the file before it is ever asked.

Connections. Read-only access to a system rather than an export. Accounting data pulled directly is fresher than a PDF and cannot be selectively assembled. Worth asking for, worth being careful about: scope it to the deal, name the purpose, and give it an expiry.

Attestations. A signed statement. A director's certificate, a solvency confirmation. What matters is the signature, so "we have a copy" and "we have a signed copy" are different states and the checklist must be able to tell them apart. An unsigned copy arriving against a signed requirement is one of the most common silent failures on a deal.

Checks. Things you run yourself with no chasing at all. Filing history current, charges register, directorships, sanctions screening. These belong on the list precisely because they are easy to forget — nobody chases you for them, so nothing surfaces when they have not been done.

Internal. Work owed by your own team. Legal to review the facility agreement, Credit to sign off the model, IC to approve. These are the items most checklists omit entirely, and their absence is why internal delay is invisible. If Legal's review is not on the list, it cannot be late.

A working list

Grouped by section, with the kind in brackets. Roughly the order things get asked for.

Financial

• Statutory accounts, last three financial years (document)
• Management accounts, year to date (document)
• Connect the accounting system (connection)
• Aged debtors and creditors (document)
• Bank statements, last six months (document)
• Bank mandate and signatory list (document)
• Top five customers as a percentage of revenue (answer)
• Current headcount and any planned changes (answer)
• Explanation of any material margin movement (answer)

Corporate

• Group structure chart (document)
• Companies House filing history current (check)
• Charges register, existing security (check)
• Directorships and connected parties (check)
• Signed director's certificate (attestation)
• Board approval of the facility (document)

Legal and security

• Existing facility agreements and security (document)
• Material contracts above a threshold (document)
• Litigation, actual and threatened (answer)
• Executed facility agreement (attestation)

Internal

• Legal to review the facility agreement (internal)
• Credit to sign off the model (internal)
• IC approval (internal)

Three properties every item needs

Whatever your list contains, each line needs three things or the list will quietly stop being used.

An owner. Not "the borrower" in general — which party. On a deal with a borrower and two guarantors, an item owed by the Jersey holdco should not be sitting on the operating company's list. Getting this wrong is how a counterparty concludes the list is generic and stops reading it carefully.

A state, and more than two of them. Open, requested, supplied, in review, accepted, bounced back, waived. Two states — done and not done — cannot represent the most common situation on a live deal, which is we have something against this and nobody has accepted it yet.

A reason it is mandatory, or an admission that it is not. If everything is mandatory then nothing is, and the deal team learns to treat the list as advisory. Mark the items that genuinely block IC-ready and let the rest be optional.

Staleness

One property that is easy to add and pays for itself: how old evidence can be before it stops counting.

Management accounts more than a quarter old are not evidence of current trading. A filing history check run six weeks ago is not a check. If the checklist knows each item's shelf life, it can tell you that something accepted in week two has gone stale by week nine — which is otherwise found at IC, in front of the people you least want to find it in front of.

Waivers belong on the list

Every real deal waives something, and a waived item must read as waived — with a reason and a name — rather than as complete.

This is worth being firm about because the failure is silent. A waived item that renders as satisfied is indistinguishable from a satisfied one, and the first time anyone notices the difference is when a deal has gone wrong and somebody asks who decided it could be skipped. That question deserves an answer that is already written down.

Where the template comes from

The best source is not a template library. It is your own last five deals, read for what actually got asked and what got waived every single time.

An item waived on five deals running is not a requirement. An item added by hand on five deals running belongs on the template. That feedback loop is the whole mechanism by which a checklist gets better, and it needs nothing more sophisticated than someone looking once a quarter.