Direct lenders diligence deeper than banks and move faster doing it. Here's what private credit funds actually request, how sponsor-backed and non-sponsored processes differ, and how to build the data room they expect.
Private credit has taken a huge share of middle-market lending from banks, and borrowers meeting direct lenders for the first time notice two things immediately. First, the process is faster: a direct lender can go from first call to funded in 6 to 8 weeks, where a bank club might take 12. Second, the diligence is deeper: a fund holding a $75M unitranche on its own balance sheet, with no syndication exit, examines the credit the way a private equity buyer examines a company.
That combination, faster and deeper, only works because direct lenders run tight, front-loaded processes with well-defined request lists. Borrowers who know the list close on the fund's timeline. This guide covers what direct lenders ask for, how their process actually runs, and how to prepare.
A bank arranging a syndicated loan diligences to distribution: enough to write a credit memo and support the information memorandum, knowing risk will be spread across a group. A private credit fund holds the whole position, often for 5 to 7 years, with quarterly marks reported to its LPs. There is no distribution to hide behind.
Consequently, direct lenders behave like principal investors:
If you've read our overview of the best data room for PE due diligence, the resemblance is not a coincidence: many private credit teams came from PE, and their request lists read like buy-side DD lists with a credit overlay.
Sponsor-backed deals (a PE firm is buying or owns the company) are the fund's bread and butter. The sponsor runs the process, shares the buy-side QoE and commercial diligence, and the lender substantially rides that work while doing its own credit modeling. Timeline: often 4 to 6 weeks, compressed to match the M&A calendar. The data room is usually the deal room the sponsor already runs.
Non-sponsored deals (you're a founder- or family-owned business borrowing directly) get more scrutiny, not less. There's no sponsor diligence to rely on and no sponsor equity behind the loan, so the fund does everything itself: expect a fuller request list, a commissioned QoE at your expense or theirs, more management meetings, and 8 to 12 weeks. Pricing is typically 50 to 150 bps wider too. Everything below applies double if you're non-sponsored.
A representative first-round list from a private credit fund, for a $40M to $150M facility:
The financial section is where direct lenders differ most from banks. A bank credit team accepts your EBITDA with adjustments; a private credit fund rebuilds it. Every add-back ("one-time" legal costs that recur annually, owner expenses, pro forma synergies) will be tested against the general ledger. Borrowers whose add-back schedule survives QoE intact close on schedule; borrowers whose adjusted EBITDA drops 15% in QoE re-trade their own deal.
| Phase | Weeks | What Happens |
|---|---|---|
| Screening | 1-2 | Teaser/CIM review, first call, indicative terms |
| Term sheet | 2-3 | Negotiate structure, pricing, covenants; sign and go exclusive |
| Confirmatory diligence | 3-7 | Full request list, QoE, model build, management meetings, references |
| IC approval | 6-8 | Fund's investment committee, sometimes in two stages |
| Documentation and close | 7-10 | Credit agreement, security, KYC, funding |
Two features of this timeline matter for preparation. First, it's front-loaded: the request list lands in full within days of the term sheet, and the fund's deal team wants the room populated within a week. Second, investment committees are scheduled events; missing your IC slot because the working capital analysis wasn't ready costs two weeks, not two days.
Structure the room to mirror the request list above: financial, commercial, structural/legal, management, plus a KYC folder. Three practices that specifically speed up private credit processes:
Index against their list. Direct lenders track diligence in their request list spreadsheet. Number your folders and reference their item numbers in your file names or a cross-reference tab. Their analyst updates the tracker in minutes instead of hours, and you look like a borrower who closes.
Stage the sensitive layer. Customer names and unit economics at line-item level can sit behind a second permission tier until exclusivity is signed. Direct lenders accept this; several of their portfolio companies probably compete with you.
Keep granular access logs. If you're running two or three funds in parallel before exclusivity, watch the analytics. A fund whose team spent six hours in your financials folder is real; a fund that opened the CIM once is optionality. Negotiate accordingly.
On platform choice: these processes involve one to three institutions plus a QoE firm and counsel, with heavy document volumes and staged permissions. Mid-market platforms fit well; Firmex and iDeals are both common in sponsor and direct-lending processes, and our guide to the best data room for debt financing and loan syndication compares the field on lender-group permissions, Q&A workflow, and the post-close reporting phase that follows.
Private credit documentation typically carries more extensive reporting than bank debt:
The practical implication: keep the data room open post-close and make it the reporting channel. One upload, logged receipt, clean audit trail, and when you refinance or the fund's LPs run their own diligence, your reporting history is already organized. We cover the mechanics and economics of this in the case for an always-on lender data room.
Talk to private credit deal teams about failed processes and the same themes recur:
None of these are exotic. They're all preparation.
Private credit diligence is principal-investor diligence with a credit lens: rebuilt EBITDA, commercial verification, bespoke covenants, and a front-loaded request list on a fast clock. Prepare a room indexed to their list, defend your add-backs before they're attacked, stage sensitive data sensibly, and hit your IC date. The funds move fast for borrowers who move fast.
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