Borrowing to Build Your Business

 

You have a product or service and a plan on how to market yourself - but you need money.  Your options will include:

	Equity capital.
	Debt finance - short term (generally less than three years), for working capital.
	Debt finance - medium term (three to 10 years), for plant and machinery.
	Debt finance - longer term (greater than 10 years), for significant assets, such as buildings.

What steps should you take prior to approaching a financier?

 

Checklist

	Market test your idea so that you can quote qualitative and quantitative results.
	Document sales projections that are realistic and not over-optimistic.
	Make honest estimates of cash flow requirements.
	Clearly document your business idea (business plan).
	Make an honest assessment of your competition.
	Make sure your figures 'add up'.

 

How Much and at What Cost?

It is unwise to borrow too little or too much.  Too little will cramp the business;  too much will unnecessarily increase servicing costs.

	The best money is the cheapest money.
	Match finance need with facility type (eg:  use an overdraft for short term working capital needs).
	Sell yourself and your ideas to the lender.

What your lender will want to know:

	Your track record.
	Credit history.
	How much will you personally be putting into the business?
	The market in which you will operate.
	Start-up costs.
	Technology needs.
	Projected cash flow.
	What security are you offering?