How to get a "YES" from a Financier
If your equity or proprietorship ratio is approximately 35% or above, then obtaining finance for a business venture, whether a new or existing operation, is much easier than most people believe. If the equity ratio is below 35% then the task is a little more difficult. However, if the steps discussed in this article are followed, the chances of success will be greater.
1) Knock on the Right Door
The majority of business people look to finance their business operations by the procedure known as debt financing. That is, they will borrow funds from a financial institution knowing they will need to repay the principal together with the appropriate interest and other charges.
Equity financing is the terminology used when a business owner decides they require longer-term capital funds as opposed to shorter/medium term debt financing. By using equity financing the shareholders must usually give up a major portion of their shareholding to the new investor. Venture capital operators are a common source of obtaining finance of this nature. Out of every 100 propositions submitted to venture capital operators, approximately only two are approved.
Trading banks and their associated finance companies are the most common sources from which to fund working capital and other asset acquisitions.
2) Convince the financier the business has the ability to repay them
These are the questions to which most reputable financiers will want answers:
Ø What is the purpose of the loan?
Ø How much is required?
Ø How is the loan to be repaid? The answer to this question should include the following information:
- The history of the business operations
- What is unique about its product or service?
- Management capabilities
- Industry risk factors
- A copy of the balance sheet and revenue accounts for the previous three years, and forecasted balance sheets for the next two years
- Estimated profit and loss statistics on a monthly basis for the next 12 months, and on an annual basis for the two years following
- Monthly cash-flow forecasts for the next 12 months, and then annually for the next two to three years.
- The business' cash flow, which is net profit after tax and adding back non-cash items such as depreciation
Ensure that all the above information is submitted to the appropriate person at least one week before the appointment with the financier.
3) Seek help from people who have skills you do not possess
One of the main reasons whey entrepreneurs do not obtain the finance they require is because they try to do it on their own and do not seek the right advice.
A Chartered Accountant is the professional most sought-after by business people on financial matters.
Clients should expect a Chartered Accountant or financial adviser to be able to provide answers to these questions:
* How many applications for financial assistance on behalf of your customers have you submitted in the past 6 months?
* How many of these have been approved?
* How many applications have you submitted that have been similar to mine?
* How many of these applications were approved?
* Do you have a personal contact with the financial institution we are submitting our application to?
* How many applications have you had approved where the equity ration of the applicant company was below 35%?
The replies should give the client a greater degree of confidence in the capability of the financial adviser to help with their proposition.
4) Make an effective presentation
Presentation is a crucial step in obtaining finance. The following suggestions may help:
* When dealing with a trading bank, try to speak to the decision-maker
* Ensure the written application is submitted at least one week in advance of the first appointment.
* If the business person is not confident on financial matters their financial adviser should attend the interview.
If you don't know the answer to a question, say so and let them know you will get back to them that day (if possible).
By following the steps outlined in this article, and if they are realistic in relation to their demands on the financier and their integrity is beyond doubt, business people should not have much difficulty obtaining the finance they require.