Having covered how to pitch your business to investors and lenders in our previous column, we will now dive into the financial information that is required to accompany your pitch, specifically to lenders.
Lenders will generally require the cash flow budget and the statement of assets and liabilities as part of any loan application. They will use these financial statements to determine your capacity to meet debt-servicing expenditures and the level of security that can be provided.
Thus, it is imperative to ensure your pitch/proposal/business plan is well presented in terms of how your financial information was compiled, showing that you have full understanding of the financial status and potential of the business, to help ensure that your application will be approved.
The process of borrowing funds usually consists of four key steps, which we will discuss over the month of October, but for today's article we will only discuss two of the four steps.
Step 1. The nature of the loan
Before completing your financial projection on the budget and statement of assets and liabilities, determine the nature of the loan that will be suitable for the business plan. The most important aspect of the loan application, in most cases, is your ability to meet your loan obligation, thus it's critical to bear this in mind when completing your business plan.
Step 2. Project/Business plan assessment.
The financial decision of approval may be based on the viability and profitability of your projections provided in the finance section of the business plan. However, in cases of an existing business seeking funds, you will be required to provide historical financial information in the form of business bank statements and signed financial reports. The cash flow projections showcase the funds you require but also the projected inflows of the business.
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Your financial projectionsshould include:
· Inflow and outflow projections
· Quote the timing and amount of additional capital expenditure for the business.
· Show the additional expected income (outside the normal business activities), the source of this additional income, the nature, and the timing accordingly.
· On the previous point, show the associated costs of getting that additional income.
·Compile a total detailed cash flow budget of the additional income and the associated costs.
The likelihood of the success of your application lies in your understanding of the needs and requirements of the lender and ensuring that they will be satisfied with the information you provide within your business plan; thus, the information should be accurate and truthful.
Lenders are usually interested in four main aspects of your business plan, namely, the business idea or concept, repayment capacity and risk involved, and the personal attributes of the lenders in terms of your credit history, and prior business dealings.
In our next column, we will continue with two more steps that are important in compiling your financial projections for the business plan.
*Mekupi Kambatuku is a managing consultant at Simpli Business Advisory and can be reached at admin@simpliadvisory.com.
