Companies need to raise financing to support their operations, expand their business, and to have cash flow to finance major purchases of equipment and real estate. There are many different variations of financing available to a company looking for assistance. Such option include working with factoring companies, debt and equity financing, or some hybrid between the two. Debt financing involves the use of a loan to help to assist your company meet your financial needs which incurs some form of an interest payment as compensation for the loan. Equity financing replaces that interest with partial ownership of the company. While with debt financing there is a predefined upside in the company by the lender as it is limited to the interest rate of the company, payment is more secure. For an equity loan the chance of repayment is lower but the potential reward is higher.
Regardless of the form of financing that a small business chooses for their company there are some basic things that management can do to help their company get ready for the financing that they are trying to obtain. Following the following steps will sometimes significantly increase the amount of money that they will be able to receive in financing and will often greatly expedite the process of obtaining said financing.
Start by being sure that you have some form of financial statements available that tracks your financial history, in addition to tax returns for each of the years available which tie into these figures. The financial statements that you have prepared should include a balance sheet, profit and loss statement, cash flow statement, and equity state. Financial statement notes are generally preferred but not always necessary, depending on the size of the loan. In addition you should consider having the financial statements compiled, reviewed or audited by a certified public accountant which will provide the lender or financing party that the numbers in these statements are reasonably accurate.
Next, you should have documented an bit about your company including the current ownership and management as well as the major customers, vendors, and other stakeholders. Describe the plan for the company and what the reason is for your financing needs. Have a firm write up of how you plan on using the money that you are seeking to finance and how you will be either able to repay it if the financing is debt, or how you will convert that financing into a better return in the long run if it is equity financing that you are trying to obtain.
Finally, in addition to past financial history, you will need to provide a window into the future, generally through budget projections extending out anywhere from three to ten years. Then, many financing agents will ask you to explain variances in your budget and actual figures going forward so that you can demonstrate the financial wherewithal to repay any of the financing that you receive with high quality returns.
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