How to improve your odds of being financed
Aside from having the assets, collateral, and a stellar financial track record, there are a few key issues you should be prepared to articulately communicate to improve your odds of being financed.
Use of funds: Are you buying equipment or real estate? Are you hiring key staff members? Are you investing in product development or building a website and e-commerce store? Do you need to buy tools and vehicles? Why do you need the money you’re seeking?
Have a basis for your amount that is founded in fact and research – and make sure it’s accurate and defensible. You should be able to prove that you need what you say, otherwise you will appear uninformed and misguided. One key tip: Never say you need the money to pay yourself an inflated salary.
Repayment of funds: Every lender or investor wants to know how and when you will repay them. So you should have conservative financial projections based on realistic sales figures, accurate costs and margins. Also, be ready to produce projected P&Ls and cash flow statements that include a line item for repayment of funds.
Different financing vehicles have different repayment terms. So it’s important you don’t build your projections around how much cash you need to spin off in order to repay. Build your projections first, then see if you can afford the financing.
It’s imperative that you’re organized and can easily and clearly communicate these issues. Many lenders don’t understand the first thing about your business, so they rely on you – as the owner – to be the expert. If you present yourself as unorganized, uninformed, or unprepared, you better have sufficient collateral, otherwise lenders will turn and run.
Remember, most lenders are extremely risk averse – presenting yourself as a high-risk borrower doesn’t help your likelihood of closing on financing.