There comes a time when a business can no longer run on love alone and you may need to (eek) borrow some money. There are many ways to achieve this, but one of the most common is seeking finance from your bank or an investor.
Borrowing money from any source can be a scary prospect. But it doesn’t need to be. Here are six tips on how to approach the finance seeking process.
Remain faithful to who you are, and what your business represents. In the business world we are advised to be authentic by being true to our brand through voice and social media sharing. In finance this simply translates to avoid trying to be something you’re not. If you’re meeting with a representative from the bank this means dressing true to yourself and approaching the meeting with the right attitude. A plumber in a suit or insurance broker in jeans sends the wrong message.
This is just like a pitch to a client. You wouldn’t walk into a boardroom of potential clients or quote for business without having all the knowledge and tools at hand to meaningfully and intelligently discuss what you can offer. Ensure you have copies of your Business Plan, Business Continuity Plan, Financial Statements and any other relevant documents.
Financial Institutions and investors don’t give away money. They need to feel that you are a safe investment for them and that you will repay the loan. It will go a long way if you can show that you are prepared to shoulder some of the risk by investing some of your own money in your business.
Attention to detail
Applying for credit often involves filling out forms. Take your time completing all the documentation and prepare all required information thoroughly. Nothing says ‘lazy’ more than missing information. Besides wasting the bank’s time, it just means you’ll need to wait longer for an answer if you are being chased for missing information.
Think to the future
Most businesses believe that if they can demonstrate solid financial performance in the past, that will win them the loan. This couldn’t be further from the truth. Shift your focus from the past to the future and demonstrate to the bank that they can reliably trust that you have systems and strategies in place to maintain or increase revenue. This may be in the form of Profit and Loss Projections or a Cashflow Projection. If your accounting software can’t easily produce this for you, it is worth outsourcing this to an accountant.
Cash pays the bills
A healthy profit does not always equal a healthy bank account balance. You don’t repay a loan through profit. You repay a loan with cash. The best way that you can keep the cash flowing is to collect your debtors. Demonstrate to the bank that you have a system in place to keep the cash rolling in.
If you find yourself needing to ask a bank to believe in your business as much as you do, make sure you are prepared. Find and surround yourself with people who can help you sell your business to the bank. Engage an accountant, consultant or business adviser.
If need be, practice your pitch on family or friends. You never know – you might not end up needing the bank or investor!