Last week we looked at the different lending sources available to obtain business finance from.

This week we move on to the application itself, but first let us take a look at the reason why we need to raise the finance in the first place and how that reason can affect the loan application.

Why Do You Need To Obtain Business Finance?

Ok, let’s start at the beginning. Why do you need to raise funding and what will it be used for?

The way that you intend to use the money raised can have a big impact on your success in obtaining the finance in the first place.

Equally important is the manner in which you present the reason for obtaining finance. Remember the risk-reward evaluation from part one?

Risk-Reward Analysis: “What is the chance of the lender losing their money (the risk) against what returns they stand to make for providing the funding (the reward) and the likelihood of you being able to pay it back (more risk).”

So minimize any potential risks and maximize the potential rewards.

Common Reasons For Obtaining Business Finance

1. Business Start Up

2. Expand Business

3. Buy Capital Items

4. Buy Commercial Property

Go outside of this list and you had better have some very good supporting material.

Going outside of the list may well also restrict your options when we look at potential lenders if this could also be perceived as an increased risk.

It would be reasonable to expect any loan for a purpose not on this list to cost you more as well in terms of interest rates.

So now we know why we need to raise some financial assistance let us take a look at the application process itself.

The Application

More often than not, you will be dealing with a corporate lender in one guise or another. So a professional and complete application must be made.

Once again it is beneficial to leap over the table and put yourself in the lender’s shoes.

We know they are looking for minimal risk and maximum reward, so let’s do our best to show them that in our application.

The Business Plan

Every potential lender is going to need to see one of these. Quite frankly even if you don’t need to raise finance you should still have a Business Plan.

Your Business Plan is your blueprint for success, a guide or manual for your reference to ensure your business is on track and focused.

Your Business Plan should include:

1. Overview

Description of the business opportunity and why you think it will be a roaring success.

2. SWOT Analysis

This is a report where you look at the Strengths (S), Weaknesses (W), Opportunities (O) and Threats (T) facing your business and show how you would tackle or take advantage of them.

3. Marketing & Sales Strategy

The Marketing Strategy identifies your target market, showing who is going to buy your service or product and outlines the plan for letting them know all about it. You should include any research you did to reach these conclusions.

The Sales Strategy shows how you intend to convert the enquiries created by your Marketing Strategy into, guess what, sales!

4. Pricing

Either as part of your Marketing Plan or separately, show how you arrived at what is the correct price for your product or service.

5. Unique Selling Point (USP)

Identifying or creating a USP is an important part of having a successful product or service. It is the answer to the question: “Why should I buy from you and not Joe Bloggs?” What is so different about your offering?

6. Key Personnel

This is your opportunity to let the lender know who are the key people in your business and what role they play. What qualifications and work experience do they have to help ensure the success of your venture.

7. Financial Report

This should include:

a.  A Cash Flow – which details the projected flow of money in and money out for the business. Not an assessment of profitability but of the liquidity of the business and its ability to meet running costs.

b. A Projected Profit & Loss – which will indicate the potential profitability of the venture. Details expected income, less expenditure leaving your profit or loss.

c. A Balance Sheet – is a list of all your assets and liabilities.

The Presentation

So now we have our Business Plan ready and very soon it will be the day of our meeting with the prospective lenders.

Final preparation for the presentation is an important last chance to make sure that we have everything stacked in our favour.

The final checklist:

1. Proof  read the Business Plan one more time. Spell check and check that grammar is correct. Most good word processing software will do that for you, but if you are not sure get someone else to do it for you.

2. Create an index and get the whole report bound. Any decent stationery shop will be able to look after that for you and it will make the all important first impression a good one.

3. Be prepared. Like all good Boy Scouts leave nothing to chance. Make sure you know your facts and figures, where to reference important information in the Business Plan, any relevant government regulations. Try and preempt any potential curve ball questions and practice the responses.

4. Last but not least, do not forget your own personal presentation. Dress accordingly, looking smart and professional, ready to instill confidence and belief in those that are literally about to invest their funds in your success.

Summary

Now you have the knowledge. You know what you need to do in order to succeed.

Proper preparation instills confidence and tips the chances of success firmly in your favor.

When you need it, take professional advice. You don’t have to do it all on your own.

The monetary rewards and the improved lifestyle that come with running a successful business are obviously a massive motivation for many entrepreneurs. But the feeling of pride and achievement is equally satisfying and can be the icing on the cake.

This article was written by Brian K Fitzgibbon CPA.

Brian is an experienced accountant and small business consultant. He runs his own business, lectures extensively on small business topics and has checked out and valued many hundreds of small businesses for buyers.

Brian is also the author of the highly acclaimed and invaluable
"How To Value A Business And Buy It Without Fear"
A do-it-yourself guide for first-time and experienced buyers alike.

To download a FREE Chapter from Brian's book please follow this link: "HowToValueBusiness.com"

March 21st, 2009 | Tags: business finance, buy a business, buying a business tips, get a loan, how to obtain a loan, loans | Category: articles | Subscribe to comments | Leave a comment | Trackback URL  |