Applying for finance as a business owner is often a slow, frustrating and disappointing process. Executive coach Refilwe Khumalo says the most common mistake is not evaluating and approaching suitable investors.
“Research and knowing what kind of investor to approach for your specific financial needs will help you eliminate a lot of embarrassment and heartache, and will save you time and money on repayments,” she says.
The following are important questions to ask yourself before rushing to seek funding as they will help you to ascertain the type of loan or investor that is suitable for your needs.
- What is your credit rating/history?
- Break down the overall amount needed. Consider how long it will take you to repay it and what interest rate can you afford.
- How much of the money can you raise without borrowing?
- How much collateral do you have to put up for the loan?
- How long have you been in business and what’s the current financial status of your business?
- How soon do you need the money?
Keep your options open
It helps to give yourself a few options rather than putting all your hope in one potential investor. Do the research and make a list of at least three potential lenders.
Understand the products and options
The more you know or understand the types of loan products, the application criteria or requirements, and which investors offer better value and rates in the market to better suit your loan needs, the better your chances of securing a “yes” to your application.
Provide detailed information
It’s important to be fully transparent, 100% honest and factually show exactly how you intend to use the requested funds. For example, if you’re looking to purchase machinery, provide quotes on the exact costs, indicate how much capital you need for this purchase and be specific about how this new machinery will help grow your business operationally and financially.
Provide detailed and current financial information
Prepare and provide detailed information on the financial background of your company, future growth plans, and your personal financial information. Presenting thorough information will help reduce the time the investor needs to finalise your loan application.
Prepare to answer questions
Before you approach an investor, there are several key documents you should develop, and questions you should be prepared to answer. This information should demonstrate why an investor should give you the loan by demonstrating your vision and passion for what you do.
Key questions to think about are:
- Why are you approaching their specific institution?
- Why should that institution invest in you?
- Why should the investor/institution invest in your business over others in your industry?
If one investor declines your application, don’t just walk away in distress and hopelessness. Be sure to ask for feedback so that you can understand where you fell short and can learn from your mistakes and better prepare for your next application.