Here’s what a typical lender wants to know:
- How much do you need?
- What will you do with it?
- When will you pay it back?
- How will you pay it back?
- What if something goes wrong?
Having answers to these questions makes the decision process clearer for all parties. It also serves as a guide as to the most suitable type of finance for your requirements.
Let’s now consider each of the above in more detail.
How much to you need?
Be realistic. If you need $20,000 to pay a tax bill don’t seek a $15,000 loan that will leave you short. Similarly, don’t borrow more than you need, the additional cost will be an unnecessary expense.
If possible arrange a ‘backstop’ facility, one without an account management fee, that you can draw from should the need arise.
What will you do with it?
The answer to this question will direct you to the most appropriate funder.
If you require working capital to bridge the gap between raising an invoice and the 30 – 90 days it can take to receive payment, talk to us! We’ll convert your credit sales into cash helping you grow your business.
If you need to purchase new plant, equipment or vehicles talk to a specialist asset financier or your bank.
If you want to purchase the premises your business operates from, talk to a bank about a mortgage or perhaps arrange vendor finance with the current owner.
If you are seeking finance to buy a business or start a new one remember that most lenders will be cautious. They will want to conduct a review your business plan and forecasts. They will want to know what you have contributed to the venture and to gain a clear idea of the security you have to offer.
Don’t expect any lender to take all the risk!
When will you pay it back?
A key point here is not to make commitments that you can’t meet. If you are unable to meet the agreed repayment terms you are exposing yourself to late payment fees, penalty charges and other costs.
If your circumstances change talk to the lender, they are better equipped to help you if you openly communicate at an early stage any issues that exist or may arise.
How will you pay it back?
If you are seeking funding for fixed assets or real property having a business with a track record of profits and positive cash flows will assist you in demonstrating the ability to repay via future profits.
Be prepared to show a potential lender cash flow, projected revenue and profit forecasts.
Funding and the repayment thereof can be achieved many ways. For example Cash Flow Funding or working capital finance is typically provided by way of the sale of your invoices. Repayment is generally made by your customers when they pay for the goods and services they purchased from you on the credit terms that you allowed them. This is a smart solution for smart businesses seeking a facility that’s more flexible than a bank overdraft and can also help save time and money. Remember, a cautious lender will prefer to fund a debtors’ ledger with minimal bad debts and a low amount of overdue accounts. However that lender may also be willing to assist in the ‘tidying’ your debtors’ ledger allowing you the freedom to concentrate on growing your business.
What if something goes wrong?
Talk to your lender, often there is a simple solution.
Lenders do encounter clients that run into problems and prepare for such things.
For a lender there is no such thing as too much security, which is why the banks will take your debtors as security even when they are not prepared to reciprocate by way of funding against them. Most lenders will try to make their position as secure as they possibly can.
You must be expect to stand behind your business and demonstrate that you have “skin in the game”. If you are not prepared to back your own business, why would any lender!
You must show a potential lender that your business is in a position that warrants the risk the lender will take by providing funding.
Choose the type of funding that best suits your needs and your ability to repay. Any lender will want to establish that you will be a good guardian of their money or they won’t feel comfortable offering you a facility.
- your financial position;
- your credit history;
- what really drives your need to borrow;
- how much you need to borrow, if it fluctuates and if so how so; and
- how you will repay any advance and service the associated interest and costs.