When And How to Successfully Borrow Money

Most businesses, at some point, need to approach lenders for financing. This can be a tough ride for many people as lenders are hard to please and persuade. They have expectations, and requirements, that make it difficult to obtain the financing needed to start, grow or expand a business.

When approaching a lender for financing, the most critical thing that concerns them is risk. You must prove to them that your business presents a reasonable risk; meaning that there might be business ups and downs, but your enterprise will still be profitable and be able to make the payments.

Here we will give you some tips on the best time to approach lenders for funds and what information to have on hand when meeting with them:

When to obtain financing:

The best time to obtain financing is often when the company is just starting out. There are usually no existing debts and not too many expenses that can signal an inability to pay the loan back. It is always easier to obtain financing when the company is at a break – even point or at a good point because it poses no threat of losing money. However, if someone was to approach a lender with high amounts of debts, or shows an inability to pay their suppliers, it will set off a red flag to the lender signaling that this business is a high risk and won’t be able to repay their loan.

Another good time to apply for financing or getting a line of credit is at any point in the business where it is in a financially positive position. This means that the business’ credit rating is good, bills are being paid on time, and there are little or no debts. This will show potential lenders that the company’s operations are stable, and they pose little risk.

Helpful links to federal and provincial loan sources, as well as other financing alternatives:

• Canada Small Business Financing Program

• Business Development Program

• Sources of Financing

• Canada Business Service Centres

• The Business Development  Bank of Canada

• Calmeadow

When meeting with lenders, the following will help improve your likelihood of success:

Lenders want to know about your business, how you will make money, and most importantly, on how they will be repaid. The most effective way to show this information is by having an effective business plan. This will include the following:

• An industry overview: of trends and estimated sales in the sector. It is important to describe your company's place within the industry, the competition you face, and how you plan to meet it.
• An operating plan: this will outline the business’ location, facilities, equipment, current staffing, required staffing needs, current inventory and what is needed to operate the business.
• A market evaluation: that assesses the extent of demand for your product or service - and how you plan to meet it. Outline your strategies for sales, pricing, advertising and promotion.
• Management structure: including your legal, internal and external management resources and personnel needs. Also outline the key people in your business, such as yourself. Include important information such as business expertise, background, skills and qualifications.
•  A financial plan: that elaborates on your borrowing needs. Include your financial status and list your personal assets and liabilities. You want to show how much you are personally willing to invest or have invested. This should be about 25 to 50%of what you are asking for. It is also good to put in any assets that could be used as collateral against the loan, such as machinery and equipment, buildings, etc. This lowers the risk factor in the minds of the lenders being approached.

Other things to have ready when meeting lenders are:

• Cash flow projections: this will indicate the ability to repay the loan, and an estimated time it would take for repayment. Cash flow is a major tool lenders use to assess risk, and how they will be repaid is one of their main questions they will ask.
• Business tax returns: although these are not required, they provide a good representation as to the financial position of the company.
   

When speaking with lenders, be sure you are familiar with the details of your business plan. When asked how the money will be used, it is good to have consistent and relevant information as to how much is needed, what it will be used for, and the reasons for needing the money.

For more information on preparing a business plan, or on how to get financing, you can visit the Canada Business Network.