Funding Requests When a company is looking for either a business loan or venture capital, a mistake many people make when submitting a Funding Request is having their funding needs stated in a financing range something like “$2,000,000 to $5,000,000.” What this is saying is, “we need $2M, but we are willing to spend $5M if you are so gracious as to give us $3M more than what we really need.”
How many times do you think a Banker is going to write a check for an additional $3M? It doesn’t happen. Statements that provide a funding “range” instead of “specific” funding request will never get funded.
If the Client doesn’t know specifically how much they need to expand their business, they shouldn’t expect a Funding Source to guess for them. Lenders are looking for good deals. They are looking for people who know their businesses inside and out. Lenders want the Client to have completed their homework.
A quality business plan will include a Detailed Use of Funds. This document can be used in initial conversations before the entire business plan is submitted. The Detailed Use of Funds will provide very specific detail as to what the funds will be used for. If the funds will be used to purchase equipment, then the manufacturer, equipment type, model, etc., should be listed and each piece of equipment priced. If there is going to be shipping and installation expenses, which are included as part of the cost of acquiring the equipment, then the details need to be provided.
When there is an acquisition of a business the Funding Request will include amounts for real estate, equipment, inventory, and goodwill. Each category should be broken out and supporting documentation in the business plan will provide the sound reasoning of why the items have that value (appraisals and business valuations will be covered in an upcoming newsletter). When the total amount needed to fund the project, adds up to $2,384,657.89, this is a specific amount the Lender will use to base their calculations on. Again, they are not going to fund another $3M on top of that.
This seems like such an obvious point. However, on a daily basis we receive deals from both Clients and Consultants who are shopping deals in this very manner of providing financing ranges and hoping somebody will write a bigger check. They never get funded.
On top of that, many finance companies charge Due Diligence Fees (another topic we will cover in upcoming newsletters). Many times Clients are required to pay up front fees and then are upset when the deal doesn’t get funded - due to the lack of quality and specific information. People who think they can receive funding by providing anything but a complete package are misinformed.
Unfortunately with more people using the Internet, this problem has gotten worse. Clients get turned down at their local banks, and instead of improving their presentation they think that other sources will have a more relaxed attitude about funding their deal. Clients turn to the Internet to find additional funding sources and the typical results are finance companies receive the same inadequate package by numerous inexperienced Consulting Firms.
Finance companies wouldn’t be in business very long if they weren’t diligent about the deals they provide money to. If the local bank won’t fund the deal, and the Client truly believes in the project, then the Client needs to be prepared to spend time and money updating their presentation, so they can successfully approach finance companies who are willing to fund the deal.
The financial world is smaller than most people realize and Clients shouldn’t waste the time of the finance companies they are trying to receive funds from. If the homework isn’t done and the package isn’t complete - don’t send it. Consultants, who don’t understand the fundamentals of submitting a quality package, may find themselves being cut off by the funding sources they need.
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It is the intent of the Business Funding Secrets newsletter to provide tips, techniques, and advice on getting business deals funded. Whether you are a person looking to fund a business, or a Consultant who submits deals to funding sources, we want to stress to you how important it is to have your Funding Request along with all the other documentation, to be clear, concise, and specific.
Many times we educate by pointing out the mistakes of others - so you don’t make those same mistakes. You cannot be successful at getting a deal funded if you are providing your capital resources sloppy, inadequate, and incomplete data.
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Along with the many topics and tips about getting a deal funded, upcoming newsletters from Business Funding Secrets will include articles about funding sources who are looking for specific types of deals.
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For more information on obtaining funds from the capital marketplace review information from The Project Corporation, a professional consulting firm with expertise in business funding. And if you are not directly receiving this newsletter already, you can sign up for the FREE information at www.BusinessFundingSecrets.com
