When it comes to obtaining finance, it’s everyone’s goal to receive the best rate possible.
I was listening to a podcast yesterday where they were speaking to a finance broker about different types of lending etc, but the broker raised a point that I’ve seen countless times. That is, that surprisingly often accountants only hear about a client wanting to obtain finance, be it personally or for business, once they’ve already spoken to their bank or broker and they need their last years’ figures. It then becomes a mad rush to get things together whilst the client stresses out because they need this funding asap for their dream house or business transaction and it’s not a fun process for anyone. Generally speaking, banks will always want figures as up to date as possible, so if you haven’t completed the prior year returns or accounts it’s important to discuss your need for finance with your accountant before you’ve approached anyone. Everyone then knows their expectations, and when things will be finalised, which makes the experience a lot smoother and less stressful for all involved!
Another point the broker raised, which probably applies more to either new or larger/more specialised business funding situations, was being prepared and having answers to the financier’s questions before they’ve even asked for them. I believe this to be an underestimated area of importance when going for finance, especially if you’re a new business or you’ve gone to a broker because your current bank has denied funding for what you want. Having a business plan prepared shows the funder the goals and expectations you have from utilising the funding which gives them confidence that you’ll have the ability to repay the loan and may also result in a lower rate of finance than otherwise might have been obtained. This is especially true if it saves you from going to a third tier lender where the rates can be much higher.
So, why is having a business plan laid out important when it comes to funding?
Firstly, as I mentioned, from a lenders perspective it gives them an idea of your business and the area you operate in, what your experience is, how you’ve travelled so far in your business journey and then where the business is expected to go as a result of the finance you’re wanting to obtain.
Secondly, and what I think is most importantly, by creating the business plan you’ve probably analysed the business in more detail than you ever have before (if you didn’t have one prepared previously). Having gone through the process, this should have given you greater clarity on what the business is doing and expected to do and quantifies the benefit of obtaining the finance the business needs. As a budget and forecast will have been created, this then gives you a benchmark to aim for and compare your actual performance against to see how you’re tracking and if any areas need more focus for improvement.
To borrow a couple of adage’s to highlight why the second point is the most important is it aligns with the “5 P’s” of success: Passion, Persistence, Planning, People and Positivity. Through the process of preparing your business plan you’ve likely gone through all of those “P’s” and in doing so ensures you have met the “7 P’s” of old military adage: Proper Planning and Preparation Prevents Piss Poor Performance.
So having met all those “P’s” you should be ready to Prosper.
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