Data Center Due Diligence
What to check before you fund a GPU cluster.
What it covers
Seven sections a credit memo on a GPU cluster needs: borrower, offtaker, equipment, site and power, contracts, insurance and monitoring. Each item names the document to ask for, why it matters and the red flag.
Get the checklist as a spreadsheet
Every item with the document to ask for and the red flag, a status column per borrower and a completeness score.
The 28-item checklist
Tick what the borrower has delivered. Open an item for why it matters and the red flag.
1. Borrower
0 of 5Can this operator build, run and fill a cluster this size?
Ask for: List of past clusters: GPUs, location, dates, uptime
Clusters of similar scale commissioned before, with testing time built into the schedule, are the best predictor of delivery.
Red flag: First cluster at this scale with no named operations lead.
Ask for: Bios, org chart, cap table, latest valuation
Someone must own engineering, operations and finance; a cap table shows who can inject equity in a delay.
Red flag: Head of operations or finance is a contractor, or recently left.
Ask for: Bank statement showing the equity contribution
Covenants bar loan proceeds from non-hardware costs, so equity must carry interest, rent and power through a delay.
Red flag: Equity arrives after the first drawdown, or is itself borrowed.
Ask for: Debt schedule; UCC lien search
Prior UCC-1 filings and leases decide whether the lender is first on the equipment.
Red flag: Blanket liens from a prior lender, or the same serials on two schedules.
Ask for: Audited or CPA-reviewed statements, tax returns
Revenue to date and burn show how long the borrower survives a slow ramp.
Red flag: Unreviewed management accounts only, with revenue that does not tie to bank statements.
2. Offtaker
0 of 4Who pays for the compute, and can they?
Ask for: Executed offtake or master services agreement and order form
An LOI can be walked away from; take-or-pay revenue is what services the debt.
Red flag: LOI only at funding, or an order form under an unsigned MSA.
Ask for: Offtaker financials, funding history, investors
One customer carrying most of the revenue is normal for these projects, so its financials matter as much as the borrower's.
Red flag: Offtaker cash under 12 months of its commitments.
Ask for: Prepayment, deposit, letter of credit or guarantee
A prepayment shows commitment: IREN's Microsoft contract requires 20% of each tranche up front.
Red flag: No security at all from a venture-backed offtaker.
Ask for: Termination clauses, letters of credit
No termination for convenience plus credit support keeps revenue in place; SharonAI's $1.25B contract with ESDS has both, including $140M in letters of credit.
Red flag: Termination for convenience with a fee below the remaining debt.
3. Equipment
0 of 4What is being financed, and what is it worth now and at maturity?
Ask for: OEM or reseller quote with every line itemized
GPUs are about 77% of a cluster's BOM; quotes bundle optics, support and margin into lump sums.
Red flag: An un-itemized network and racks line; we have seen one at 11% of equipment value.
Ask for: Third-party appraisal or market check
The same B300 server has been quoted at both $460,000 and $550,000; 80% of the higher quote is about 96% of the lower.
Red flag: Advance sized on the invoice or on a list price.
Ask for: Values at key dates: FMV, OLV, FLV
The loan balance should stay below the conservative resale band through the term.
Red flag: Residual booked on purchase date rather than technology age.
Ask for: Signed order with delivery dates, networking included
Larger Blackwell orders wait 6-9 months; every month of delay spends a month of the resale curve.
Red flag: Delivery date "subject to allocation" with no penalty.
4. Site and power
0 of 4Can the site keep the equipment running at the uptime the contract requires?
Ask for: Colo order with kW per rack and energization date in writing
GPU racks draw 40-80 kW while most data centers run 10-30 kW; the Uptime Institute found 67% of existing sites cannot support modern GPU densities.
Red flag: Energization date "expected", or kW committed below the GPUs' draw.
Ask for: Cooling design; liquid loop and CDU specification where needed
Past roughly 40 kW per rack, direct-to-chip liquid cooling becomes mandatory.
Red flag: Liquid-cooled GPUs going into an air-cooled hall "to be retrofitted".
Ask for: Uptime certification; outage history from existing tenants
Uptime Tier I and II sites allow 23-29 hours of downtime a year, Tier III about 1.6; a tier missing from Uptime's registry is self-assessed.
Red flag: Self-assessed tier, or a retrofitted crypto mine without redundancy.
Ask for: Rate schedule and escalation clause
Contracts can pass through utility increases and raise committed power permanently.
Red flag: Open-ended pass-through of utility costs.
5. Contracts
0 of 4Do the colocation and offtake terms protect the lender's path to the collateral?
Ask for: Offtake delivery and cure provisions
A missed deployment date is typically a breach with a 30-45 day cure, after which the offtaker can terminate and take back prepaid fees.
Red flag: Cure period shorter than realistic hardware lead times.
Ask for: Colocation agreement; collateral access agreement
Some colo contracts let the facility provider cut power, remove and sell the servers weeks after a missed bill and keep the proceeds.
Red flag: Facility lien with no release when the account is current.
Ask for: Limitation of liability clause
Most colo contracts cap what the provider owes at three months of fees: $900K against $25M of GPUs at $300K a month.
Red flag: Cap below one quarter of fees, or consequential damages fully excluded.
Ask for: Term, renewal and termination clauses
Leaving early makes all remaining fees due at once; missing a renewal window can renew a 36-month term for 36 more.
Red flag: Colo term ends before the loan matures.
6. Insurance
0 of 3Is the equipment insured, and is the lender paid if it is lost?
Ask for: Certificate naming the lender as loss payee
With facility liability capped at three months of fees, property coverage is how the lender recovers a loss.
Red flag: Borrower is the only named insured.
Ask for: Transit policy, carrier, packing list
FOB origin on the purchase order makes the equipment the buyer's risk from the moment it leaves the vendor.
Red flag: No cover between the vendor's dock and the rack.
Ask for: Facility property fact sheet
Insurers price the building: construction, fire suppression, monitoring, security and backup power.
Red flag: Facility will not answer the insurer's questions.
7. Monitoring
0 of 4Will the lender see trouble before the missed payment?
Ask for: Monthly receivables aging
Late invoices two months running are an early default signal; Stability AI short-paid AWS by $1M in July 2023.
Red flag: Requests to defer delivery, cut reserved capacity or move to on-demand.
Ask for: Resale index or appraisal update
Appraise the financed SKU quarterly and act when LTV crosses the covenant, not at maturity.
Red flag: LTV covenant tested only at maturity.
Ask for: Serial report vs UCC-1 equipment schedule
GPU serials read remotely and matched to the UCC-1 schedule catch equipment moved without notice.
Red flag: New UCC-1s by other creditors on the same equipment.
Ask for: Backup operator agreement; colo access rights
A firm that can run the cluster within 30 days keeps revenue alive; lenders who kept the borrower, site and contract alive in the 2022 mining bust recovered most of par.
Red flag: No one but the borrower can operate the cluster.
By topic
| Checklist | What it covers |
|---|---|
| GPU cluster technical due diligence | A technical due diligence checklist for lenders financing GPU clusters: quote vs market, configuration, power and cooling vs the site, uptime, refresh. |
| Neocloud due diligence | How lenders diligence a neocloud borrower: operator track record, offtaker credit, equity through delays, colocation and the failure modes behind defaults. |
| Offtake contract due diligence | What lenders check in a GPU compute offtake contract: take-or-pay terms, delivery and cure dates, termination, security and the uptime the site must hold. |
| Colocation due diligence | What lenders check before financing GPUs in a colocation facility: power and density, tier, liability caps, facility liens, step-in access and exit terms. |
| BOM review | How lenders review a GPU cluster bill of materials: cost mix, quote formats, markups, lump sums and what to check before sizing the advance. |
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