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Finance your Business

In this section we focus on approaching a lender for finance.  A similar page about equity type finance is here.

Before asking a lender for finance it is a good idea to make sure that you are in position to answer their questions and provide the information that they are likely to ask for.  Most lenders will want to be convinced that:

  • you and your management team have the right skills and experience to run the business successfully
  • your business will be able to repay the loan

Most lenders (although not necessarily UK Steel Enterprise) will also require security and, in many cases, personal guarantees.  They will want to know that if things do go wrong, they will still get their money back.

You may wish to consider the following questions before making an application for a business loan.

Can you demonstrate that you have the right management skills?

Lenders back people first and foremost and they want to ensure that your business has a management team that has all the key skills it needs to operate successfully.  Do you or your team have the required experience in the key areas of operations, finance and sales?  Will you be able to answer questions in each of these areas?  In some cases, particularly in young businesses, the management team may just be you.  That’s fine so long as you can talk knowledgeably about all aspects of the business even if in some cases you rely on outside help for some of these skills.

Do you have a strong business plan?

Make sure it is also concise and realistic and that it identifies the key risks associated with your plans.  It should explain your business in clear terms, avoiding jargon wherever possible.

Do you know your business plan and can you justify everything in it?

There isn’t a problem in getting professional help to pull your business plan together, but make sure that it’s your plan, that you understand it and have ownership of it.

Can you identify what sets your business apart from everyone else in the market?

Make sure you can readily identify the unique selling points for your business – why would somebody come to you over your competitors?

Do you know your market?

The size of your market and your projected market share can be useful information but what a funder really wants to know is where your actual sales are going to come from.  How do you attract sales?  Who are your customers?  Do you have a good and rising order-book?  Who are your competitors?  What will stop you achieving the sales you are forecasting?

Is your product or service fully developed and tested in the market?

A lender will want to know how the business loan is going to be repaid and will generally need to see evidence that you are generating sales already.  Can you identify where your sales growth will come from?  If there is still work to be done in this respect, you may need to fund this development work yourself, or with the assistance of a specialist proof-of-concept funder.

Can you identify what you want to use the requested funds for?

Be clear as to how the funds will be spent and how they will help you grow your business.  Don’t be afraid to build in some contingency as things rarely go exactly as planned.

Do you have good financial information including projections?

Lenders will want to understand your past performance and see up to date accounts, preferably monthly management accounts.  They will also require projected profit & loss, cash flow and balance sheets.  P&L and cash flow projections should be monthly for at least the first year (longer if the peak cash requirement is later).  These help the lender to assess how realistic your proposals are and demonstrate your ability to repay a loan.

Are you investor ready

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