Borrowing money to fund a business can be a nerve-wracking process for any new business owner(s), here I would like to share a key list of useful information around how to apply for business funding (especially purchasing an existing established trading business).
Useful information/essential supporting documents before applying for business funding –
- How much is the total cost to set up, buy or expand the business with a clear break down, including what stock, equipment, set up costs or working capital if needed.
- How much would you like to borrow and how much will be your own contribution (including your own savings, assistance from family etc);
- Any security you can provide to the lender, such as your own home, rental property, commercial property or general security agreement etc;
- The nature of the business –
- If there is a turnover warranty and a restraint of trade included on the business sale and purchase agreement.
- Due diligence via legal and accountants, such as current business premise lease agreement if any, the current owners historical financial reports (at least the past 24 months) up to date management financial accounts;
- Projected business cashflow/forecast based on historic trends;
- Management to ensure ongoing business income (detailed business plan to outline strength of management, manager/owners experiences in the industry or prior business experience/success, qualifications and business support if any);
- Other source of income to help to repay the proposed loan or any exit strategy.
Apart from well prepared documents and research, it is also important to sell your ability to manage the business on an ongoing basis, show them how confident you are about the future growth of your business, and you (as the business owner) have the sufficient capability to manage the business.
Next month I will be talking about different types of business loans and what is the best way to structure your business loans to save interest costs while maximise your business cashflow.
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