Put your ASK in gear was the mantra at a training session I attended many years ago.
It is a great trigger reminding us what we must do to grow our businesses. We always have to ask—for the business, the referral, the testimonial—but most importantly for getting business financing.
The big question is–do you really know how important the way you ask funders for money impacts the potential for winning business financing?
The Funding Request
The funding request is a statement of:
- How much money you need
- Why you need it
- How you are going to invest the proceeds
- What the future returns will be to the financing source
There are some differences between a lender request and an investor request.
In the case of a lender request, detail how the lender will be repaid for the amount borrowed plus interest. They also want to be sure that the loan payments will not strain the company. Lenders also want to know that you have the collateral available to repay the loan in case of a default.
Investors want to know the potential return on their equity investments. They want to understand how they will be rewarded in the future for having taken a risk on investing in your business today.
In order for equity investors to be rewarded, they have to sell their equity investment. Nearly all Angel investors, Venture Capitalists, and Private Equity firms are not buy-and-hold investors. They want liquidity on their stock holding, which means an exit strategy must be developed before they invest in your business.
An exit strategy could include an IPO, merger, sale of the company, or stock redemption. Or you could plan for the company to buy back its stock after it has grown. Your investors, however, will be looking to maximize the value of their shares, and that could mean a significant increase in the value that you will pay to them compared to the initial investment.
The Big Differentiator
How you ask a financing source, a lender for a loan or an investor to provide money to your business can make the difference between a yes or no to your request for funding.
A major differentiating feature of a winning proposal is that the request details how the loan enhances the business. Always state how these funds will help the company’s:
- Cash Flow
Show how the money will be used to help the business grow.
Provide a description of how you will invest the proceeds of the loan and provide commentary on how this will be beneficial to the company’s growth and profitability. For example, state the benefits in terms that a financial expert will understand:
- ABC Company will use the $500,000 of proceeds from the loan to buy a widget maker.
- With this piece of equipment, ABC Company can increase its volume of widgets to meet customer demand:
- Which has grown by 20% over the last three quarters,
- And is forecasted to increase at the same pace for the next three years.
- In addition, this equipment will bring costs down by 14%.
- ABC Company will repay the loan in three years from the cash flow from operations
- Based on the increased revenue and increased profitability from the acquisition and operation of the widget maker.
In an interview with INC magazine, Bob Seiwert, a senior vice president of the American Bankers Association who has thirty years of small-business banking experience, said it best when he stated, “One thing to realize as you’re sitting down with a financial expert is that, well, you aren’t one. Most entrepreneurs are enthusiastic risk-takers.”
Seiwert continued to say that “You have to be prepared. If you have a viable business model and the banker feels that this business model is going to work in this new economy, you have a very good chance of getting financing. But you have to be ready to show that it will work.”
Show How Your Success Will Be Their Success
Always keep in mind that process for winning business financing is a major marketing endeavor. However, many times, the actual request is treated as an after-thought. In most cases the request for funding is listed as XX number of dollars for a loan, line of credit, equipment lease or purchase.
To be a winner in this race, you need to do much more. The purpose must be a dynamic statement which sets the tone for the entire presentation. “People do not buy for logical reasons. They buy for emotional reasons,” says Zig Ziglar, a well-known sales expert.
And financing sources are no exception. Always remember, the loan officer or the investor and their funding committee members are human beings. They must be excited and motivated to help you succeed and your company to grow.
The purpose of the funding request is to clearly explain how this money will improve your company’s operations, increase revenue, profitability, and cash flow within a specific timeline.
All this leads to the biggest question from the funder:
- For the lender: how will they be repaid.
- For the investor: how much wealth will I make when I exit this deal.
You need to show them how your success will make them money. That it is a win-win situation for both you and them.
Detail how your business will create an exciting, high growth company and provide a large return on their investment.
Keep in mind that your financing request is one of the most important pieces of your proposal. If you do not excite the lender or investor at the beginning, your request will end up in the round file.
Remember you will be judged by your writing and your presentation package. If you do not have good skills to accomplish this, you may want to get some professional help to make your proposal top notch.
It will be worth the effort!
Diane Weklar, the Authority on Accelerating Business Growth, is the CEO of the Weklar Business Institute. She is the author of the award winning book, Mastering the Money Maze: 10 Secrets to Winning Business Financing,which is also an Amazon #1 Best Seller. This book provides practical insight to build a successful business and the practical steps to raise capital to help your firm grow. She can be reached at Diane@Weklar.com.