Colocation Due Diligence
What to check before you fund.
What it covers
Once the hardware is financed, the colocation provider controls its power, cooling and cage. Most colo contracts cap what the provider owes at three months of fees, and some let it sell the servers weeks after a missed bill.
What you should check for
| Facility | Tier on the registry | The tier appears in the Uptime Institute's registry, not only in the marketing. |
| Density and cooling in the order | The signed order covers the GPUs' kW per rack and cooling. | |
| Outage record | Downtime and reliability at that location, from existing customers. | |
| Money | Power price capped | Tier III AI colo ran $100-200 per kW per month, power included, in Q1 2026; contracts can add CPI + 2% a year and pass through utility increases. |
| Fees from day one | Fees can start before the servers are installed; carry them in the delay case. | |
| Exit terms sized | Remaining fees fall due at once on early exit: $5.4M with 18 months left at $300K a month. Renewal notice cut to 14 days. | |
| Lender protection | Lien release and surplus | The provider's lien releases when the account is current, and surplus sale proceeds return to the borrower. |
| Loss payee | With liability capped at three months of fees, property coverage names the lender as loss payee. | |
| Access for a backup operator | A collateral access agreement, a named colo contact and a 30-day decommissioning plan for 10+ cabinets. |
Sources: American Compute.
Recovery runs through the colo
A colo contract is usually a license, not a lease: the borrower gets none of a tenant's protections, and the provider can enter at any time and move the servers on five days' notice, or none.
In a default, recovery means coordinating with the facility: a named contact, staff who can power down and unplug, control of the cage, and time to sell the cluster whole over 30-60 days.
Red flags
| Self-help sale clause | In one contract: power cut around day 30 after a missed bill, servers removed a week later, sold a week after that, with the provider allowed to keep the proceeds. |
| Liability capped at three months | $900K of liability against $25M of GPUs at $300K a month in fees. |
| Automatic 36-month renewal | Miss a 30-60 day cancellation window and the term renews for 36 more months. |
Discuss a transaction
Send us the equipment list and the loan or lease you have in mind. We will come back with an indication and the questions we would need answered.
Prefer email? hello@amcompute.com