The search for financing is essential during various phases of a company’s life cycle. You need to prepare your request for financing and show future financial partners how you will use the funds you raise. Some obstacles could hinder your search for a loan, including the common following five:
1/ Having bad personal credit
Late payments, multiple loans, a credit utilization rate of more than 85%: these all negatively impact your credit rating. The way you manage your personal finances can affect the finances of your company. And if you don’t have a strong personal credit rating, you could find it hard to raise funds. In this situation, you should find a partner or wait until your credit score improves.
2/ Not making a down payment
A down payment shows you trust your business project, the same way you are asking for financial partners to trust it. By injecting little or no capital into your business, you’ll be signalling that you are not ready to take a financial risk. Potential investors or lenders could be less inclined to finance you because you won’t share the risk with them.
3/ Presenting financial projections that are too optimistic
It’s important to justify your company’s projected revenues because they will corroborate financial projections. Otherwise, your financial partners might have trouble believing the veracity of these figures, and as a result, they will probably have serious doubts about your business project. Purchase orders and letters of intent from potential clients might support your projections.
4/ Providing incomplete financial information
Financial statements are used to measure the financial health of your business. Your financial partners will rely on this information to evaluate your ability to reimburse the loan and grow your business. If the financial information presented in a request for financing was not validated by an accounting professional, it might include mistakes or omissions. You should see hiring the services of an expert in this matter as an investment instead of an expense.
5/ Not showing your ability to reimburse the loan
If you were planning to borrow money, you must demonstrate the company’s ability to reimburse it. A financial plan that shows outlays but no income will not reassure the lender. They are of course interested in your business project, but they first and foremost want to find out your ability to reimburse the loan.
Take the time to produce a well-written request for financing. It will help you evaluate your company and make a good impression on financial partners. Don’t forget to include an executive summary that shows the growth of your company. Be aware that criteria used for evaluating a request for financing can vary from one investor or lender to the next.
For the tools and resources necessary to search for funding, consult PMEMTL.com.