Service contracts and lender comfort

Nobody reads the whole file

A contract file for a maintenance business can run to hundreds of documents. No credit assessment reads them all. What happens instead is a sample: the largest contracts by value, plus a handful of ordinary ones to check that the large ones are representative.

That has a useful consequence. A buyer who has read the same sample first, and can say what is in it, is a long way ahead of one who hands over the folder. It also means the largest contracts carry disproportionate weight, because they are the ones certain to be read.

The parent sector page explains why the maintenance book is the asset in an HVAC purchase. This page is about the documents underneath it, and what a lender does with them.

The clauses that get read

Whatever the contract is called, an assessor is looking for the same handful of provisions.

Term. Fixed period, rolling, or evergreen until terminated. A fixed term with a stated end date is easiest to value.
Renewal. Automatic unless notice is given, or an active decision each year. Automatic renewal is worth materially more, because inertia works for the contractor rather than against.
Notice. How much, and by whom. A rolling contract terminable on a month's notice is closer to goodwill than to a contract.
Termination for convenience. A right for the customer to end the agreement without cause, which appears more often than buyers expect and quietly undoes a long term.
Change of control and assignment. Whether the contract survives a change of ownership, whether it can be transferred at all in an asset purchase, and whether consent can be withheld unreasonably.
Price review. Whether the price can move, on what basis, and whether it has been moved.
Scope. What the visit includes, whether parts are covered, and what falls outside the fee.
Liability and response times. Service levels with financial consequences attached, which turn an obligation into a potential cost.

Change of control is the one that most often changes a deal rather than merely colouring it. A large contract that terminates on a change of ownership is a hole in the asset being bought, and it is sitting in the contract file waiting to be found. Find it first, and if consent is needed, start asking for it early rather than treating it as a completion formality.

A purchase order is not a contract

Some of what is described as contracted revenue turns out to be an annual purchase order, a priced offer the customer accepted years ago, or a course of dealing that everybody assumes will continue. All three can be perfectly good business. None of them is a contract, and presenting them as one damages credibility across the whole submission.

The honest approach works better. Split the schedule into contracted work with a signed agreement, work under a recurring purchase order, and work that recurs by habit, then say plainly which is which. An assessor who is given that split trusts the rest of the pack. One who discovers it themselves re-reads everything sceptically. See how lenders assess recurring revenue.

The reconciliation is the actual evidence

The contract schedule proves what should have been billed. The sales ledger proves what was. Putting the two together, contract by contract, for at least two years, is the single most persuasive document a maintenance business can produce.

It answers several questions at once: that the contracts exist, that they were invoiced, that the values in the schedule are real, and that renewals happened rather than being assumed. It also exposes anything that has quietly lapsed, which is better found by the buyer than by a lender.

Where the customer is a managing agent rather than the building owner, add a column for whose name the contract is in. A portfolio held through one agent behaves like one customer whatever the site count says.

What happens when the contracts are weak

Weak paperwork rarely stops a good business being funded. It changes the terms, in fairly predictable ways.

Expect a shorter term, so the debt is repaid inside the period the contracts can be relied on. Expect more of the price deferred and tied to contract retention, which is the seller carrying part of the risk they created. Expect the possibility of a covenant on retained contract value rather than only on profit, and expect security to be asked for. See deferred consideration and earn-outs and personal guarantees explained.

None of that is punishment. It is a lender pricing the difference between income that is contracted and income that is habitual, which is a real difference and one the buyer should be pricing too.

The pack that makes this quick

Contract schedule: customer, site, contract type, annual value, frequency, start date, renewal date, notice period.
A column stating whether each has a change of control clause, and whether consent may be withheld.
The top contracts by value, in full, as actual documents.
Two years of schedule-to-ledger reconciliation.
Renewal history, showing what came up for renewal and what renewed.
A short note on anything unusual, written before it is asked about.

Our document checklist puts this in the context of the wider pack, and what carries value in an HVAC business covers what the contracts are worth once their terms are known.

Why the same file gets two different answers

A funder whose template was built for businesses with tangible security looks at a maintenance book, finds vans worth very little and a folder of service agreements, and prices for the security it cannot see. A funder that has lent against maintenance books before starts from the contract schedule, because it knows that is the asset.

The file is identical. The answer is not. We know this market and we know specific people who have funded HVAC maintenance books before, so the same schedule goes to somebody who reads it as an asset rather than as a list of promises. Tell us what the book looks like and we come back to you with who can fund it and what they will want to see.

We introduce buyers who are acquiring through a limited company or a NewCo. If you are buying personally, as a sole trader or as a partnership, we will point you to an authorised firm directly instead.