Business Funding Secrets
Business Funding Secrets

Breaking Down the Funding Request


Funding requests are provided by companies seeking capital to expand their business. However, the funding request presented to a Funder, or intermediary, often only provides a lump sum amount. Many potential finance deals will be quickly eliminated due to this simple mistake. When a company is attempting to acquire capital, they need to provide a breakdown of their funding request.


For a simple example, consider there is a funding request to purchase an existing Medical Center. The funding would include both the real estate and the equipment inside.


Considering someone wanting a 20-year commercial mortgage, we will work with that number. How would your business be doing if you were still using a computer from 20 years ago - probably not well. Technology changes, and equipment wares out, so a Funder is not going to allow the used equipment inside the medical building to be rolled up within a lump sum with the real estate because that specific equipment is not going to be around in 20 years - where the real estate will be. Different funding will be provided for the two different assets.


For all transactions, either the Client or the Consultant needs to break down the funding request and present a Detailed Use of Funds. Depending on the company and the capital needed there may be a real estate loan, equipment leasing, purchase order financing, accounts receivable financing, loans for the business based on personal real estate, life insurance, jewelry, etc. The commercial real estate loan may be provided in a construction loan funded in draws, and then a permanent take out loan when the project is completed. When more detail is provided the project is more likely to stay on the desk instead of traveling to the round file.


Funding start-ups is always difficult to begin with. Most start-ups need to look at a number of different avenues and a new company should not expect one source to provide all the funding. Depending on the funding request, most start-ups will need to use family, friends, and credit cards. A start-up that doesn’t break down their funding request is a company that increases its almost improbable chance of getting funded from a business finance company.


Various funding potentials for Start-ups:


If there is equipment needed in the start-up, equipment leasing is always an option.


When the company is manufacturing a product, funding is needed for raw materials, there are contracts in place, then Purchase Order Funding is a possibility.


If the company can get up and running, and there are business to business receivables, then working capital can be assisted with Accounts Receivable Financing.


If the company will be selling a product where financing for the customers would benefit the seller, there are companies that can supply that type of financing.


There are solutions for start-up financing but it is not likely going to come as a lump sum from one source.


For the best chance of getting funded - breaking down the funding request  allows you to focus on the Funders that are targeting that type of deal.  

 

Tips: 

 

Clients need to provide detail, detail, detail. If you provide documentation where the funding source has to guess at what you are doing, the transaction is not going to get funded. Do your homework, and provide the detailed information. If you are not willing to work to provide quality information don’t expect a Funder to say, “Hey, this guy is lazy and wants us to guess at where our money is going. Let’s fund him anyway.”


Consultants will earn more commissions when they work with a Client breaking down the funding request. Instead of having a deal quickly turned down, the Consultant has the opportunity of building relationships with business loan officers, equipment leasing companies, purchase order specialists, etc. Commissions will come from a number of funding sources when you take the time to assist the Client in the presentation of the information.


After the initial Executive Summary  has been provided, and there is interest in the project, does the company have a detailed Business Plan. I typically look for plans that have 200 pages, or more. Less than 200 pages, I consider the person has not done their homework.

 

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