The ongoing health crisis has affected us all in different ways, but the resulting economic context requires a high level of resilience among entrepreneurs and decision-makers. In these conditions, how should you adapt how you seek financing and modify your business strategy?
Even during a pandemic, you can convince new partners to support you and your business recovery if you are well prepared. Whether you are seeking financing to grow your business, boost operations, move forward with projects (an acquisition, for example) or simply to structure your financing to gain a competitive advantage, here are a few elements that you should keep in mind.
Take the new reality into account when seeking financing
During these challenging times, lenders are focusing on their existing client base. They are supporting their clients through a moratorium on payments where clients can defer capital repayments. More recently, they have also offered clients financing that meets their needs (for equipment purchase, for example).
Consequently, account managers have less time for new clients and their loans. Make sure you bear this in mind! For this very reason, it is vital that you are better prepared than ever. Don't simply submit your financial statements. Build a detailed proposal so lenders can save time and you can succeed in convincing them.
In order to make your proposal irresistible, your financing request should include:
- A description of your business: Describe the company's history, products and operations as well as its management team and advisory committee.
- Information on the market: Outline the characteristics of your industry and your company's benefits. Don't forget to mention your competitors.
- Your business operations: Paint a picture of your clients and suppliers and describe your usual payment timelines, for example.
- Your complete financial profile: Include your financial statements from the last three years and your financial forecasts (including your company's balance sheets, income statements, and monetary flow).
- Your financing needs and investment sources or support that you are aiming for: Explain why this loan is important to you. Furthermore, demonstrate that you're not putting all your eggs in one basket by diversifying your financing.
- The impacts of COVID-19: Describe how COVID-19 has impacted and will continue to impact your sales, operations, clients, employees and suppliers in the short, medium and long-term in addition to the impact and scope of government programs in response to the crisis.
- A performance analysis that separates the effects of COVID-19: Concentrate on both your results and forecasts. You should also clearly identify the funding and moratoriums on payments that you have obtained or plan to obtain. Don't forget to adjust your figures to reflect non-recurrent items.
A few key tips so you'll know what to expect and be better prepared
Be aware that it might take time to secure financing. Timelines have been extended in light of an increased number of requests and certain staffing reductions. Bear in mind that the process will involve answering more questions than before since due diligence is now more important than ever.
Furthermore, present a risk sharing plan that is more balanced than prior to the pandemic which includes a larger down payment and balance of sale in addition to the participation of government bodies (as loan guarantees).
You should also be prepared for more restrictive ratios and conditions for the financing granted as well as more frequent follow up on the part of the lenders.
In short, you should not view financing as a solution to operational issues or challenges caused by the crisis. Instead, make your challenges the central element of your request and outline how your plan will help you overcome them. You can then demonstrate how the loan would support and align with this plan.
These events, presented by Investissement Québec, are organized by Acclr Business Information Services and driven by the Chamber of Commerce of Metropolitan Montreal.
Acclr Business Information Services’ activities receive financial support from Canada Economic Development for Québec Regions.
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About the author:
Richard Morrison, CPA, CA, CFA
Associate Director, Roynat Capital
Backed by almost 30 years of financial experience, Richard Morrison (CPA, CA, CFA) has advised and supported many public and private companies on optimizing their financing. Mr. Morrison holds an MBA in Finance and extensive expertise in investment and financing. Co-founder of the M&A Club Laval and a member of the Montérégie CPA advisory committee, he recently joined Roynat Capital as an Associate Director. Mr. Morrison advises Acclr Business Information on optimizing their clients' financing.
The opinions expressed in this post are those of the author and do not necessarily reflect those of the Chamber of Commerce of Metropolitan Montreal. As a result, the Chamber cannot be held responsible for published content.