If you haven't already done so, you need to build strong business credit scores with all three national business credit reporting agencies: Experian Smart Business Reports, Dun & Bradstreet, and the Equifax Small Business Financial Exchange. Your business is viewed as an entity by lenders and investors, and they will want to see that entity is responsible in who it handles its creditors. Having strong business credit scores is now a vital component for being able to get your business funded, don't take it for granted or you will most likely get declined. To build strong business credit scores your business must have 5 vendor credit lines, 3 business credit cards, and 1 bank loan that all report to the business credit reporting agencies and that are not tied to you personally.
A 2003 government study of U.S. small businesses showed that out of 15.7 million business loan applications, 97% were declined. Why? Because every lender has underwriting approval guidelines that may include as many as 20 items and you have no idea what even 1 of them are. Let's look at a few ... Did you know that lenders will decline your application if they can't find your business legal name in 411 directory assistance? You may be declined if your bank account balance is below a low 5, what is that? You are most likely declined if you don't have 5 trade credit accounts that report to the credit agencies. You're declined if you don't have a credit file number. The lender may require two years in business where "in business" was defined as the length of time your business bank account had been open. They might require your business credit score to be 70 or above. They may require your debt coverage ratio to be 5 to 1 or your FICO score to be above 680. You could be declined because your business is in the wrong industry. And then there are more, etc, etc, etc. The reasons businesses can't find funding are: They don't know where to look for the "right" funding source. They don't know how to pre-qualify before te apply. They don't know how to successfully present their request. They don't know that "miss just one thing" and they will hear NO. They don't know that "shot gunning" will kill their chances. They never take the time to build a good business credit rating. They don't separate their personal credit from their business credit.
Capitalizing your business is a full time endeavor. Developing your business plan is the single most important step you can take toward your success. To maximize your potential to receive capital, it is vital that you develop a business plan that will guide your company and allow outsiders to picture where you are going and how you plan to get there. Take great care in preparing your plan, it is the road map that will lead you where you want to go.
Lenders or Investors, which way do I go? They tend to look at transactions from very different perspectives. Lenders are mostly concerned with "Can you repay?" While investors are more interested in "How far can you go?" There are certain items of information common to both. That information will be disclosed at the start.
This is it! Grab them here and you may never lose them. This summary is an overview description of your product or service, its market, your niche, the management, the mission, company structure, pro forma highlights, funding request, use of funds and proposed terms. Your executive summary belongs at the front of your funding proposal and/or business plan and covers all the highlights of your proposal. This summary is what opens the door. Get it right, they come in and want to know more. Get it wrong, they will go no further. Your executive summary should be no more than two pages, sell the sizzle not the steak.
This can be called the elevator pitch. It should quickly and clearly define what your company does and it should take less than twenty seconds to do so
Your reader needs a summary of how this venture came to be. Where did the idea come from? How did it evolve? Who is responsible? Be concise; give dates, background, etc. Paint a short picture from how you started, to where you are today.
One sentence defining what the Company is all about. Think about it and "make it mean something". Don't just write a bunch of flowery words.
Clearly identify what stage of funding you are at. Is your business a start-up, initial growth, positioning for going public, seeking a strategic partner, looking for near future acquisition or sale?
It is important for any funding source to know where you fit in the economic food chain. What niche is your business exploiting that will make it jump over your competition? What are you doing that is better, faster, or newer than what everyone else is doing? For this part you must be very detailed. Remember the investors know nothing about your business. You must prove to them you know what you are doing or want to do.
This is yours or third party's research that supports your determination that there is a market and a need for your product or service. This will form the back bone of support for the price points and revenue assumptions contained in your pro forma projections indicating to investors or lenders how your company can turn a substantial profit
Here is where you briefly highlight, graph and preview your outstanding financial projections. This provides a glimpse into where your gross sales, net income, net worth, etc. should be in years one, two and three. Remember this is only an overview. It should contain no details or support information. That will come later in your financial pro forma section
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