Whether you need more stock, new machinery to manufacture new products, increase factory or retail space or just need to increase the number of employees, gaining access to additional funding can give your business the boost it might need. But short of applying to try and win an investment on TV’s The Vault, what are the key steps to successfully obtain funding?
BEFORE JUMPING IN AND FILLING IN MANY APPLICATION FORMS, YOU NEED TO CONSIDER WHAT YOUR LENDER WILL NEED TO KNOW? WILL THE INVESTMENT INCREASE THE LONG-TERM VALUE OF YOUR BUSINESS?
Do you have a viable proposition, and how much risk is associated with your investment? So it’s wise to plan and get organized:
Put together a cash flow forecast
This should be for a minimum of 12 months and two to three years for larger loan applications. It’s wise to obtain support from your accountant or a business adviser. They will help you sense-check your calculations and understand the impact on your cash flow in the future. They will also help produce clear projections to substantiate your loan requirements.
Produce a business plan
It’s good practice to write a three to five-year business plan. This will support your application and also show the lender that you’ve done your homework – You’ve researched the market and you can demonstrate the long-term future outlook and growth of your business, i.e. you have a plan supporting and linked to the financial forecast.
Be clear what you will use your funding for and when you need it
Is it just to buy more stock, or to expand your products or services, for instance? It’s also wise to highlight the timescale with respect to when you need to draw down the funding, as again this can affect loan conditions and overall interest payments. Do your research on funding partners too; as there are many types of funding available – some for larger loans and others if you just require a short-term cash flow facility. Also, note some funding can be available for specific business sectors. So to reiterate, it’s important to know how you will use your funding and therefore engage with the most appropriate type of funder. Ensure you ask a trusted associate, such as a business coach, bank manager or your accountant for advice before making a decision, or wasting your time filling in numerous applications.
Packages that keep cash flow moving
From overdrafts to loans, traditionally, banks offer a number of packages that can give you access to funding quickly to help improve your cash flow or build up your business assets. Increasing your bank overdraft, for instance, can help fund short-term requirements, such as an increase in stock purchases for a quick turnaround, or to accommodate increases in business generally. While larger business bank loans and independent asset finance lenders can help you buy the plant, machinery, new office equipment, or invest in infrastructure. Alternatively, I know of people who have used their business credit cards successfully to obtain extra or competitively priced stock or pay deposits quickly. But remember to be aware of the interest terms if you cannot pay off the full amount within the free period. Invoice discounting is also worth considering if cash flow is your real growth barrier. However, it’s a good idea to speak to your bank manager or your business advisor for further information on this facility, as it may not be for everyone.
Key things to remember
Do your research and know your market. A lender needs to know your company is a viable and sustainable business to fund. So it’s important to spend time preparing before applying. It does not just about know your finances. You should understand your market sector, highlight any opportunities and understand your main competitors too.
Obtain support and advice. It’s wise to get several trusted advisors to help you through the funding application process, such as an accountant to advise on the financial side and a business consultant to help you know how best to prepare the supporting plan to give strength and depth to your funding application. An advisor can help you define your business’s core values, purpose and competitive edge linked to your future opportunities, making sure you support an application with market research. One of the main reasons why businesses fail when applying for funding is not providing enough research and substance to their application. Advisors can also put you in touch with the most appropriate lenders willing to invest in your business saving you time.
Prepare to be turned down. It’s worth remembering many businesses are unsuccessful the first time they apply, so don’t be put off if your application is declined. Instead, learn from the process, ask the lender why and consider doing further research and improving your business plan before applying elsewhere. Note – your ability to obtain credit can be negatively affected each time you have an application rejected as credit searches tend to be logged with the main providers.
Spending time preparing a strong case and compelling argument can save you a lot of stress and time. Ultimately, when your grant or loan is agreed you will then be able to focus and prioritize your time following the plan you prepared and therefore, building up the value in your business. Funding can give your business the boost it needs to develop. Proper preparation, thorough research, getting professional advice and being able to clearly explain what you need funding for to the right lender is more likely to lead to a successful application. And, as a result, help you obtain the financial support for a better, bigger and more profitable business for you.