Funders are businesses that either lend money to make a profit or invest money for a return. As such, their goal is to minimize the risk of losses which is why they do a thorough assessment of you and your business before approving funding.
As such, their goal is to minimize the risk of losses which is why they do a thorough assessment of you and your business before approving funding
While there are different types of funding products that have different requirements, there are some common things that funders look for from all businesses when they assess funding applications.
When you are request funding, funders will want to look at the following:
They need to know that you have a viable business model, which is another way of saying, they want to know if you are making money and if so, what your business does to generate its revenue.
They want to know how long your business has been trading for and what your average monthly turnover is.
They also want to know whether you have a good trading history, that is, have you been receiving regular income from multiple customers and that you have been paying your suppliers (creditors).
You need to tell them how much money you are applying for and what you plan to do with the money.
It is important to show funders that you have a pipeline of future revenue.
They will want to see your submitted quotes, letters of intent, signed customer contracts, purchase orders, and outstanding customer invoices.
Can you afford the funding?
It’s one thing to have income secured for future months, but if you have already borrowed too much money or your monthly expenses are very high, you may not be able to afford the loan you are applying for.
Funders want to know how exposed you are financially, to ensure that you will be able to repay them if you receive the funding.
What security (collateral) does your business have?
Funders need to know what the business owns i.e. what assets it has, as they may require you to put these up as security if the business is not able to repay the loan.
Who are the business owners?
They want to know who the business owners are and what each one owns (assets) and owes (liabilities) in their capacity, as they may require you to stand surety for the loan.
They will check your credit score with the credit bureaux to find out how you manage your debt repayments to ensure you are a good borrower.
There are various types of funders and funding products for different funding needs and stages of business. The information and documents that funders require from you will differ, based on the type of funding you apply for.
Ventureburn (This article was written by Darlene Menzies, Chief Innovation Officer at FinFind)