Now that the economy is on the mend and confidence is rising, management teams are beginning to look at new capital expenditure and therefore ways of raising the required funding.
The first thing to understand is not to rush into anything and to make careful preparations before applying for any type of funding at all. Complete a credit check on your own company; find out what the funding providers will see about your company. Make certain that any County Court Judgements, if any, are satisfied before you apply. Check that any debentures that other funders may hold are still applicable and if not have these removed. It is shocking how many funding providers and managing directors, fail to remove expired all asset debentures from the records. Also make certain that you are up to date with filing your latest set of accounts.
It really does not matter what type of funding you require, most providers will want the same information from you, have it prepared in advance. The information that will be required is:
- Prepare a detailed business plan with forecasts for at least the next 12 months and a solid explanation of what the funds will be used for and why your company is safe to lend to. All sales and financial assumptions must be explained in full.
- Your last filed accounts.
- Your latest management accounts. If you do not normally produce management accounts then start to do them. Lenders do not like companies that do not have sight of what is happening to their financial well being on a monthly basis. But do not just produce monthly management figures, have monthly management meetings to discuss the figures as well. This helps to create a greater feeling of responsibility amongst the whole management team and gives them good insights into the challenges faced by other departments.
- Aged debtors and aged creditors. These show a snapshot of whether the company owes more money than they are owed and how well the management team are managing their cash flow.
- Discuss in advance with all the directors their willingness and ability to provide personal guarantees. It is unrealistic in today’s market place to expect funders to provide loans if the directors are not prepared to support their own company. Hopefully this may change in the future as growth continues, but it will not be in the short term.
- It is also useful to prepare a document outlining how the company has been funded in the past and a list of all borrowings that are still current. A record of the director’s personal investment in the company is also very useful to prove commitment.
- Make certain that you are up front about any past skeletons that may be in the cupboard, such as past liquidations or County Court Judgements, and have a detailed explanation as to why these occurred and what actions you took to remedy the situation. Funding providers do not like discovering these skeletons themselves and prefer the funding applicant to provide full disclosure in the first place. It should also be noted that if a Bank or other funding provider lost money in a past liquidation then the likelihood of a new provider offering further funds is limited.
I have just had a case where a company was refused funding because the managing director’s brother had a recent liquidation in his past and he was now working for his brother, my client. Because this was not disclosed by the brothers at the beginning of the funding application, it went badly for them at the credit committee stage.
Once you are prepared you can now start approaching the relevant providers. Always do this in a parallel fashion approaching a few at the same time. Do not do it one at a time waiting to fail with one until you move to the next. A prospect of mine had been using the serial method for 9 months before he asked me to help and because of the 9 month time delay his position had become more difficult and he had lost valuable orders that could not be fulfilled because of cash flow difficulties.
Create competition amongst the providers, after all they are just like any other sales organisation, they are just selling money rather than another type of product. It is also advisable to get specialist help when looking for funding. This can normally be done on a success only fee basis and their knowledge of the market place and the individuals concerned can be invaluable and can save you and your management team a great deal of time. One client of mine had been turned down by a major high street bank and had given up on that bank completely. I knew a very creative manager in a different branch of the same bank and the loan application was approved with little trouble.
It is important to be properly prepared and not to give up at the first hurdle. Needless to say the help of an experienced professional, who knows the marketplace, makes fund raising that much easier, quicker and less stressful.
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