Business Finance: 7 Steps to Follow When Financing a New Business

Businesses will need financing during their lifetime, and many will apply. As a financier, you may want to finance as many businesses as possible, but some candidates may just not be viable options for you. Take some time to look at some important details before making that final decision.

Financing a New Business

1. Check the business plan

A business plan holds all the important information about a business. Details about its future financial transactions, the profits and losses expected and what it will focus its energies on. This will give you ample insight into where the business is going and what it will look like on paper.

A business person who cannot translate their plans on paper may have a difficult time getting partners on board to see their vision. This is bad for business because different partnerships will be entered into along the way.

2. Go through their financials

What does the business currently look like financially? How have their transactions been? Look for consistency in financial reporting and record-keeping. This will show you how diligent they are and how important it is to them to keep good records.

Financial records also show you how profitable the business has been and where the money goes. Do they have a lot of expenses as compared to income? Have they reached the break-even point? This will ascertain long term profitability.

3. What does the credit report look like?

The fact that they are currently looking for a credit source means that they need to have a good credit report. Don’t assume that this will always be the case though. Ask for a credit report and go through it keenly. Find out if they defaulted on any payment and how often that happened. Do they have large debts in credit cards? Have they accrued any penalties?

A clean credit report will be easier to deal with than one with many complications.

4. Are taxes in order?

Paying taxes is a legal requirement. It is important that the business you are looking to finance meets these criteria. Look at the tax records if possible. Do the figures correctly reflect the financial position of the business? Beware of those that may have faked their income and expenses so as to reduce their tax burden. This is because they will probably try to look for quick fixes as they run their everyday business affairs and this may have a long-term negative impact on the results.

5. Do a one on one interview

The paperwork may look good to a financial expert but you will need to have a sit-down with your prospective client. How well do they know their business? How do they intend to implement their plan so that the business attains the profitability and sustainability being aimed for? This will give you a picture of the business on the ground.

6. Are they creditworthy?

You may want to help a business owner to achieve their potential, but you are in business as well. Do the figures look good? If they are not up to the standard you were expecting is there another area that the business owner can compensate with such as experience?

One who has had experience running another business venture may still be able to replicate the success previously attained. Does this mean that your money will be in capable hands?

7. How many conditions do they meet?

Some conditions must definitely be met. There are some that you may, however, be lenient about. It would be good for business if they met all the conditions required but if they look like a good candidate for business then look at that side and build on it.

Conclusion
Business finance is not a straightforward engagement. It takes a lot of due diligence and investigation before such a process is complete. It carries on into the life of the business when repayments will be required. A good candidate is, therefore always a good investment since they will bring in good returns and will provide less trouble with repayments whenever they will be required.