How to prepare for a loan request or equity funding.
Putting together a comprehensive business plan.
What is the main focus when preparing a loan or equity funding request? Be prepared! The more prepared that you are the better your chances are to receive funding. This starts by putting together a comprehensive business plan. The business plan should hit all the issues concerning the state of the company. The following list of topics are some points that could be of interest to lenders.
History - Tell a brief history of the company. When it was established, who founded the company, and the original focus? It is helpful to explain the milestones and accomplishments of the company and where it intends to go.
Management - Lenders want to know the background and history of the management of companies. The more that they understand the knowledge and expertise of the ownership, the more comfort they have with company. This is important for two reasons. The lender should be able to understand that the owner has the ability to lead the company in the direction they intend and that if the company runs into unforeseen problems, the owner has the ability to make the needed management decisions. If you are purchasing a company, it is important to note what key staff is staying and which positions will need to be filled.
Product/Service - Explain what product or service that you are offering. Go into as much detail as needed depending on the complexity of the product or service. Explain the features and benefits and how the product or service will be positioned in the market. How is your product or service different from others?
Marketing - Where is the product positioned in the market? Who is your market? DO you have a niche in the market? You also need to explain how you are reaching your desired market. Is it the through a current book of business, additional sales force, advertising, or others means? If you are buying or merging a business, it is also helpful in this area to explain the ongoing relationship management has with existing customers and how you intend to grow the business or the synergies of the companies.
Strategy - What is the strategy of the business? If you are buying a company, is it your same strategy. Where are you taking the company? Are there new opportunities or directions for the company? If so, explain the benefits.
Competition - Who is your competition? Are you competing on price, quality, or service? Are you positioned to be competitive? Explain how you intend to grow your business under a competitive environment. Also explain how you are different and tie this section back to the marketing efforts of reaching your customer.
Financials - What is the current financial condition of the company? Lenders typically want to see a three-year history including income statements and balance sheets. It is also helpful to have projections into the future. This is especially important if you are adding a piece of equipment, opening a new location, or any other major change that will effect the financial condition of the company going forward. The financial statements are very important because they show the lender the ability to repay the loan. It is also helpful for the borrower to understand the effect that additional debt will have on the company. The Performa or projections should include the additional debt that is being requested. This will also identify expected cash flow for the company. The financial section should also include a personal financial statement on the owners of the company. This is basically the owner