Obtaining a business loan or funding is a little like running a marathon – you need to be prepared!
In the post-Banking Misconduct Royal Commission era where APRA has tightened the lending criteria and general uncertainty of the regulatory framework, obtaining a business loan can be more challenging than ever.
How you prepare for a business loan is more important than ever.
Here are 8 steps you should take to help you prepare for a business loan.
1. Be clear about the business loan need.
All business loan funders will be looking at your ability to repay your loan, this includes the return you will get on the investment. Business loan needs can be quite varied and include: cash flow funding, purchase of new machinery, acquisition, product development or even to fund rapid organic growth as business growth costs cash.
2. Determine how you will deploy the funds.
Have you a clear plan including: key tasks, who is accountable for fulfilling them, and the timing around when those tasks need to be completed.
3. Based on your need and the deployment plan determine the amount of the business loan required.
Depending upon what your need is, it is worth keeping in mind that most plans seem to take twice as long and cost twice as much. Add some contingency. Asking how much money you can get will raise a red flag to a business loan funder and indicates that you have not done your homework.
4. Produce business forecasts.
Sales forecasting or P&L forecasting will not be enough. Your CFO or part-time CFO will produce the summary of the P&L, Balance Sheet and Cash Flow forecast that incorporates your existing business and the new project that addresses the business loan need. This will demonstrate to a business loan funder that you have strong controls over your business processes, and you understand how much cash you actually need for the whole business, not just for the project.
5. Review your Balance Sheet.
The Balance Sheet will tell a business loan provider the health of your business. Depending upon the purpose of the business loan, you may need to have strategies in place to improve the health of your Balance Sheet before you apply for a loan. For example, business loan funders will potentially look at solvency, liquidity and, capital structure.
6. Identify the type of funding required.
There are a multitude of debt and equity funding providers that specialise or generalise in a multitude of funding types. You can get funding specifically for assets such as a truck or equipment or for cash flow or to receive your R&D when accepted rather than when received.
Equity could be for rapid growth, but so long as you have a view to a clear exit for the investor. Before you put your funding information pack together you need to know who to target.
7. Put together a Business Loan Information Pack.
While the format will be a little different depending upon what you want and from whom, in a general sense it includes much of the above at a summary level. The aim is to enable you to have clear talking points as you start to shop around for the best deal.
8. Shop around for the best business loan.
There are many options, and you need to find the one that suits you. Preferably, arrange a process and criteria to obtain the best offers available.
Your CFO or part-time CFO is ideally placed to manage the process and help you obtain the best business loan.
If you have already applied for funding and require assistance in preparing your documentation we can help.
Author Information
CEO, CFO Evolve
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