Finding financing in any economic climate can be challenging, whether you’re looking for start up funds, capital to expand or money to hold on through the tough times.
The business funding process works in the same way that the mortgage on a house works. However, you must submit more financial information to secure business funding. You need to have a checklist complete before you submit your application, and you should not start the application process if you do not have all your paperwork together.
Below is a list of some documents you may be asked for but The Web Lender Portal recommends you wait until the funder asks for them, rather than prepare them in advance, and worse, sending them to the funder without him asking. In such cases, they will never be read and your application denied. Providing too much information is as detrimental as providing too little.
While every funder has different lending parameters there are a few common denominators shared by all.
You may need bank statements for your business, and you may need statements for yourself. These statements together paint a picture for the funding company that allows them to determine risk. You may not be asked to submit your personal bank statements, but you could be asked to if you are a sole proprietor of that business.
You may need to submit your tax records. Tax documents show the lender if you have tax liability. Tax liabilities are expenses you need to pay every month, and the lender accounts for that when repaying the funding.
The purpose of an Executive Summary is to explain the main features of your business in a way that will make the funder want to learn more. It must also include enough information that funders see the potential behind your business without having to read an entire business plan.
It is important to understand that lending money is a risk undertaken by funders. It is not a risk undertaken by borrowers. When reviewing your application funders are initially more interested in you than your business. Due diligence these days is focused about 90% on the principals of the business and 10% on the business itself, the emphasis being honesty and facts. Accurately state your current business costs, assets, and liabilities and don’t overlook anything.
Collateral is an asset is pledged to secure repayment. It is common in personal and business lending. Most funders, depending of the type of funding you seek require some form of collateral. Collateral is something you own which has value. Forms of collateral include houses, cars, stocks, bonds and cash, all things that are readily convertible into cash to repay the loan. Patents, future earnings, and future possessions are unacceptable forms of collateral.
When it comes to financing the options are virtually limitless. While most people think about traditional bank lending, the reality is that there are dozens of other methods, most of which are more favorable than a traditional bank loan. Some of these options include crowdfunding and venture capital. Venture capitalists only work with businesses that can prove they have steady revenues pouring in. They typically put a time frame on recouping their investment and don’t have time to coach or spur growth themselves.
Borrowers need to put themselves in the funder’s shoes. Preparing a list of questions and answers as if they were the funder. Example. Would I fund this project? Funders want to see that you have put in efforts to prepare your business. It is helpful to use evidence as a proof of any planning. This shows a solid statement to funders that you are confident about what you are doing. Borrowers have to demonstrate capability of managing their businesses. Funders want to know that the fund given will create significant benefits from the activity.
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