You want a business loan … who you gonna’ call??
As most of us in the startup phase of our entrepreneurship journey would know, getting cash to fund our dream is not an easy (or quick) task. There are many “No’s” before you hear the magical “Yes”. Or will you even hear the “Yes” at all?
Your dream idea is only loved by a third party finance option, if it can see that the idea has the ability to generate enough cash to pay back the loan.
Whilst this is a generalisation, who in their right mind would lend your business substantial amounts of cash if you have not proved that your amazing idea is plausible in the real world?
You see as a financial coach to startups and entrepreneurs, we see many business owners in that happy, excitable startup phase with ideas they think are the “best thing since sliced bread”. But they have not done an ounce of market research, financial forecasting or customer feedback to even work out if the idea sounds great to those that will actually be buying the end product or service.
Asking someone if they “like” your idea is not the same as asking people if they would “pay” for your idea. Totally different concepts.
So then, if you are a startup, with no substantial assets in your name, how the heck do you go and ask a bank for, hmmmm, let’s say $80k so that you can get your startup off the ground and running like a well oiled machine?
Here are my tips to give you the best chance of getting funding first time around:
1. A business plan is required. This will identify your concept, your target market, your research, your plan for the funding, why you idea is different and unique and so much more. Now I am not saying you need a 54 page business plan. And there are many templates available, but you do need to show you have put thought into this and have actually done some genuine research into your idea.
2. Financial Forecasts are mandatory. Most banks will want a Profit and Loss AND Balance Sheet for a minimum of two years. So if you haven’t started trading yet, you will need to forecast the next two years. If you have traded they will want to see current information, plus a view into the future. This is not a crystal ball gazing session. This is genuine financial data based on your research, market, hours of operation, pricing of products, number of customers, overheads, rent, wages, superannuation – the works. If this financial forecast is not accurate, does not balance, or is a half baked attempt – this really shows the bank or lending institution how serious you are with their funds (and let me tell you it will not be a great first impression).
3. There is more than one fish in the sea. OK, so by this I mean there is more than one option to seek funding from. But the rules above do not change regardless of who you seek funds from. There are angel investors (who would buy a portion of your business in return for funds) or banks and short term financiers that could be able to assist you in which you would repay the loan over time (plus interest of course). Which one you would choose depends on various factors such as time frame to repay, interest rates, amount you are seeking to borrow and how much of your business you would be willing to forgo to get the much needed funds.
4. Accounting software can help you if you are an existing business. Yes, that is right – technology can assist you in getting a loan. How this works is that third party apps such as Moula, Prospa, Get Capital and NAB all can link to your Xero accounting software, they can review your financial reporting and make an assessment about the level of finance they would be willing to lend you. Could the process be any easier ?? Some of these loans are short term and some are restricted in value – however they do try to make the process as easy as possible. They simply “get” startups.
5. Understand your numbers. I know right, you are thinking… “but the bank has to understand it and they are finance people so it will all be fine”. But let me tell you, if the bank asks you a question that you simply cannot answer, their reaction is not one of pity, but one of “go home and when you know the answer make another appointment and come back”. So yes, get your financial forecasts prepared properly, but sit down with your accountant or numbers nerd and understand what the heck they mean (we pride ourselves on this service). Make a list of assumptions to cover any possible questions. Getting on the front foot is vital.
So yes, getting funding is not an easy task – we all know that. In fact it can be down right daunting.