Securing financing for your business is a pivotal step towards growth and success. When approaching lenders, it's essential to present a comprehensive and compelling case. From the finer details of your financial plan to the broader market landscape, there are ten key aspects your lender will scrutinize closely. In this article, we'll delve into the intricacies of what lenders are looking for, helping you navigate the lending process with confidence and clarity.
Quick Summary of the Top 10
1. Your Financing Request
2. Your Business Description
3. Your Expertise
4. Your Financial Plan
5. Your Cash Flow Projections
6. Your Contingency Plan
7. Loan Security Explained
8. The Marketplace
9. Market Demand
10. Third-Party Review
These ten elements are the building blocks of a robust business loan application. From showcasing your expertise to detailing your financial projections, each piece contributes to a comprehensive and compelling case for securing the financing your business needs to thrive.
The information below contains a quick guide to the Top 10.
1. Your Financing Request
Your lender needs to know the answers to these questions:
How much money do you need—not how much do you want?
How will you use the money?
How will you cover operating expenses and loan repayments?
2. Your Business Description
In addition to needing logistical and administrative information, a lender needs you to answer:
What is your service or product?
What is the need and what niche will your business fulfill?
What are your business objectives?
3. Your Expertise
Your lender needs to know what expertise you have in these three key areas:
Your business‘ specific product or service
Marketing and sales
Finance
4. Your Financial Plan
Your financial plan needs to demonstrate the following:
Your start-up costs
Your equity contribution
Your anticipated revenues and expenses
5. Your Cash Flow Projections
Create a cash flow plan that shows you can repay the loan you‘re seeking.
Support sales projections with evidence
Address issues of seasonality
Develop three cash flow scenarios: Conservative, realistic, and aggressive
Include all start-up costs
6. Your Contingency Plan
Here are some guiding questions to think through your contingency plan:
Have you identified the internal and external risks facing your business?
What’s your plan to mitigate each risk? Is your plan in writing?
How will you deal with having half the volume of sales you expect in your first 3 months of operation?
What will you do if you get sick and can’t run the business for four weeks?
What if the provincial government raises the minimum wage by 10%?
What if the city tears up the street in front of your storefront for the summer?
What if the government imposes a new tax that requires you to change all of your bookkeeping/accounting systems?
What if the Canadian dollar drops significantly, or a new import tariff is placed on your product?
Consider utilizing a PESTEL analysis (Political, Economic, Social, Environmental, Legal) or Porter's Five Forces to help guide your answers.
7. Loan Security Explained
What assets will you use to secure your loan?
Real estate
Equipment
Vehicles
Inventory
Cash
8. The Marketplace
Can you demonstrate to your lender that you have a solid understanding of the marketplace? Have you identified:
Your customers
Your competitors
Your suppliers
Current industry factors and prevailing trends
9. Market Demand
Analysis of market demand
Analysis of your competition
Analysis of your target customers
Amount of the market you can take from the competition
Estimate of your market share
10. Third-Party Review
Many lenders require a third-party review of your business and cash flow plans. A third-party reviewer can:
Help find holes in your business plan
Assess how well-researched your plan is
Provide advice to clarify language
The journey to securing financing for your business is multifaceted, requiring meticulous attention to each key element. From crafting a persuasive financing request to showcasing your expertise and addressing potential contingencies, these vital aspects collectively build a robust business loan application. By delving into the nuances of your business description, financial plan, and cash flow projections, you not only demonstrate your readiness to lenders but also prove your strategic grasp of the marketplace and your customers' demands. And remember, enlisting a third-party review adds an extra layer of assurance, helping you fine-tune your plan and bolstering your case for funding. Armed with this comprehensive understanding, you'll confidently navigate the lending process and pave the way for your business's growth and success.
Ready to apply for financing?
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