Business funding for business growth – ensuring you and your business are ready to apply for finance

By July 31, 2019Blog
Budget; Finance; Corporate Finance

Business growth strategies for SMEs more often than not require financial investment and having access to the right type of finance at the right time is essential; but business funding is not always easy to find. You don’t always have to turn to the more traditional bank loan. Crowdfunding sites, Angel investors and venture capital are just some of the other options to consider but none to be rushed into without careful consideration what is right for you and your business.

Any funding provider will request detailed information about your business so preparation is key. Doing as much as possible before starting the application process will only help speed up the process.

Our top tips to bear in mind when you are looking to apply for new sources of funding are as follows:

  1. Do your homework; detailed preparation is essential. This is not just homework about the potential business funding provider but homework about your own business. You must know your business inside out and be ready to explain it to an interested funder. Operations, finances, sales and marketing plans; if you are not clear when answering questions about your business this could give the funder cause to doubt that you have your finger on the pulse of the business.
  2. Draw up a detailed business plan, which is a summary of the business including for example its products, services, customers, suppliers, markets, risks, growth opportunities and importantly, details of the senior management team.
  3. Draw up reasoned financial projections. A key element of the business plan will be a set of financial projections for at least the next three years, which must include a detailed profit and loss account, balance sheet and cash flow statement; these should be done as an integrated model, so that if one item varies the other items follow automatically. The financial projections need to show a positive picture but must be believable and based on realistic assumptions. Funders will always be sceptical about a forecast showing rapidly increasing sales or margins, so increases must be supported by credible evidence.
  4. Be clear about what you are asking for. How much funding do you need? What type of finance do you think would best suit your business – term loans, hire purchase, new equity etc…Articulate what the funding will be used for – working capital, acquisition finance, capital item purchases etc…
  5. Get the right advice. Good advice will help avoid the pitfalls of fund raising and may well save you money. You might only do a business plan and three year projections once in your life; professional advisers do it for a living. Given the importance of this funding to your business, you do not want to make any schoolboy errors.
  6. Ensure that you have a clean and simple corporate structure in place. The more complex the structure the harder it will be for and potential funder to understand, and therefore harder for them to develop a funding offer.
  7. Make certain that you have robust internal systems in place that will stand up to any due diligence. Any new funder will want to know that the company it is lending to can produce accurate accounts and that tight controls over finances are in place.
  8. Make sure that the funder is the right one for you. Different lenders have different cultures and different management styles. Ask to speak to some existing customers to get a feel for the level of support that they offer.
  9. The cheapest offer is not always the best. Read the small print! The cost may be low, but are there other issues such as personal guarantees, onerous reporting or covenant clauses, hidden renewal fees?

If you have any questions about which source of business funding is right for your business and what information they will request about your business please email Clive Smetham (clive.smetham@murrayharcourt.com) or Andrew Rose (andrew.rose@murrayharcourt.com) or give them a call on 0113 231 4131.