Preparing a lender-oriented funding proposal means communicating how much is needed, where the money goes, how it will be repaid, and what protects the lender if repayment is delayed. This glossary explains the core terms used throughout the ValuFund builder — from sources & uses and cash flow available for debt service, through senior debt service coverage and sensitivity analysis, to security, covenants and vendor consideration. The aim is to help business owners, advisers and sponsors present acquisition and commercial funding requirements in the structured, reconciled format that credit committees expect, without needing a spreadsheet or a paid subscription.
Sources & Uses
Sources & Uses
A reconciliation that shows how the funding requirement is applied (the uses — purchase price, refinanced debt, fees, working capital, capex) and where the money comes from (the sources — senior debt, asset finance, invoice finance, vendor consideration, buyer equity). Lenders expect total sources to equal total uses exactly; any gap or surplus must be explained. In an acquisition, buyer or sponsor equity is frequently the balancing figure once debt and other sources are fixed.
Related: Buyer / Sponsor Equity, Vendor / Deferred Consideration, Senior Debt
Example: Total uses of £2.5m funded by a £1.5m term loan, £0.3m asset finance, £0.2m vendor consideration and £0.5m buyer equity.
Debt Service
CFADS (Cash Flow Available for Debt Service)
The cash a business generates that is available to service debt after operating costs and essential outflows. A common construction is EBITDA less a corporation-tax proxy, maintenance capex, working-capital movement and other adjustments. CFADS is the numerator in the Debt Service Coverage Ratio and is the single most important measure of repayment capacity in a lender credit assessment.
Related: EBITDA, Senior DSCR, Maintenance Capex
Example: EBITDA of £1.0m less a £0.19m tax proxy and £0.10m maintenance capex gives CFADS of £0.71m.
Debt Service
Senior Debt Service Coverage Ratio (DSCR)
The ratio of CFADS to senior debt service (interest plus principal) for a given period, expressed as a multiple such as 1.25x. A DSCR above 1.0x means cash flow covers scheduled senior debt service; lenders typically look for comfortable headroom and a downside case that still covers service. Senior DSCR excludes subordinated vendor or deferred consideration, which is analysed separately.
Related: CFADS, Senior Debt Service, Sensitivity Analysis
Example: CFADS of £0.71m divided by senior debt service of £0.50m gives a senior DSCR of 1.42x.
Acquisition
Vendor / Deferred Consideration
Part of an acquisition price payable to the seller over time rather than fully at completion. It is often subordinated to the senior lender, meaning it ranks behind senior debt for repayment and is excluded from senior debt service and senior DSCR. When it ranks alongside senior facilities, its scheduled payments are included in the cash-flow analysis. Terms may restrict payments to available free cash flow or fix instalments over a set period.
Related: Senior Debt, Subordination, Sources & Uses
Example: £0.25m of the purchase price payable to the seller in three annual instalments, subordinated to the senior lender.
Security
Security Package
The collateral supporting a funding proposal. Common elements include an all-assets debenture over the borrower or target company, a share charge over the target, a legal charge over property, and personal guarantees. A clearly described security package, with commentary on coverage, gives lenders confidence in recovery and is a core part of any lender-oriented proposal.
Related: Covenants, Personal Guarantees, Debenture
Example: An all-assets debenture over the target company plus a share charge over its parent.
Security
Covenants & Conditions Precedent
Covenants are ongoing undertakings the borrower agrees to — for example financial ratios, reporting requirements or restrictions on further borrowing. Conditions precedent are the items that must be satisfied before funds are released, such as legal opinions, executed security documents and evidence of equity contribution. In a proposal these are illustrative and non-binding, shaped to lender expectations rather than offered as final terms.
Related: Security Package, Financial Ratios, Reporting
Example: A minimum senior DSCR covenant of 1.10x tested quarterly, with legal opinions and executed security as conditions precedent.
Risk & Sensitivity
Sensitivity Analysis
A downside scenario that tests how debt-service coverage holds up under stress. A typical shock applies a percentage reduction to forecast EBITDA together with an interest-rate increase of several percentage points, then recomputes CFADS, debt service and DSCR. Lenders use the downside DSCR to judge the margin of safety and the resilience of the capital structure.
Related: Senior DSCR, EBITDA Shock, Interest-Rate Shock
Example: A 10% EBITDA reduction and a 2 percentage-point rate rise that still leaves downside senior DSCR above 1.0x.
Sources & Uses
Buyer / Sponsor Equity
The cash contribution from the acquirer or sponsor that funds part of the purchase price alongside senior debt and any vendor consideration. It is often the balancing figure in sources & uses — total uses minus other sources — and signals the sponsor's financial commitment and alignment with the lender. A higher equity contribution generally improves the credit profile of the transaction.
Related: Sources & Uses, Senior Debt, Vendor / Deferred Consideration
Example: A sponsor contributing £0.5m equity to a £2.5m acquisition alongside senior debt and vendor consideration.
Put these concepts into a proposal
ValuFund’s seven-step wizard turns these definitions into a structured, reconciled proposal — sources & uses, debt schedules, CFADS, DSCR, downside sensitivity, security, covenants and narrative — ready to print to PDF for lender discussions. No account, no credits, and your data stays in your browser session.
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