Now that (from our previous posts) you know about the wide range of funding available, it’s time to take a look at the process of securing that funding. Whether you decide to go with debt or equity financing, there’s a universal factor involved in being approved.
Your business absolutely, positively must be perceived as a good risk by your potential source of funding. For that reason, you must be fully prepared for intense scrutiny of every aspect of your company.
Although the procedures and processes may differ slightly from one source of funding to another, two rules of thumb will serve across the board:
Rule One in Securing Business Funding:
Rule Two in Securing Business Funding:
Don’t even think about looking for a penny of funding unless you have a business plan.
Preparing your business plan will help you define and identify your goals, and should bring to light any issues that you’ll need to address before you begin to look for funding. Most people like a surprise when it’s a good one – birthday parties, family events, engagements – but it’s no joking matter if you’re raising funding and the financiers get a surprise down the road.
Key Questions to Ask about Business Funding
Here are some key questions you should be ready to answer with confidence:
Why do you need business funding at all?
Not just “to grow the business” or “so we can hire a bigger team”. Be specific. Identify how, where, and in what specific areas the capital will help your business.
When do you need the money?
Organize your thoughts about your specific financing need. Is it urgent? Is it short- or long-term? Obviously, you’ll get the best terms when you anticipate a shortfall or growth opportunity well in advance, instead of looking for money under pressure.
How much financing do you need?
You’re much more likely to receive a positive response from a lender by stating the amount you need instead of asking: “How much can I get?” And break it down even further: how much do you need in every single area of the business, from product development to marketing to human resources to property expansion?
For example, if you were in a manufacturing business, you might say, “We intend to add 7 machines to our existing plant which will allow us to increase output by 4,000 units a month and generate a projected $2 million of additional sales per year.”
Remember that lenders love detail. It shows preparation, planning, commitment, and more than just a whimsical desire to be rich.
Do you have a realistic plan to generate funds to repay the debt?
No lender will approve a financing request that isn’t presented as a recoverable risk.
How strong is your management team and support staff?
The collective experience of the people who lead and carry out your business is critical to getting funding approval. Do they have special training? Are they members of professional groups or trade organizations? By asking questions about the strength or weakness of your management team, you’ll be able to close any gaps before you seek out funding. And rest assured, your potential funding source is going to be looking for the Achilles heel in your management team. So, if there is one, your best bet is to find it and fix it first.
Start with a short business funding questionnaire
In our next post we’ll talk about writing a business plan for your funding request – but start now with a short questionnaire to answer all the above questions. It’s a great way to get started – whether you work with us, or not, you’ll still get a copy of your report which you can utilize to raise the funding you need. Answer questions