Call us (405) 757-0940
Vertices | Tax & Accounting
How To Get Funding As a Small Business
Get Ready For Funding
We’re not talking about $35 million seed funding, we’re talking about loans, private equity, and grants for small and medium businesses. In our line of work, we often have people asking us to help them secure funding from one source or another. Typically, we are brought in to bring the financial statements up to date and to consult on how best to show value in the business. Several of our owners, being serial entrepreneurs themselves, have a plethora of experience in obtaining funding. Here is a quick breakdown on how to get funding for small and medium businesses
What Do Lenders Want To See?
Lenders primarily want to see how much free cash flow you have every month that is available to pay your debt to them. They make their profits on interest, by lending you money at 8% that they pay a depositor 3.5% to hold on to. In order to determine how financial solvent you are, they are likely to consider the following items:
Business revenue
Monthly cash flow
Outstanding debts
Unused credit lines
The household income of the owners
Amount invested by owner into the business
Future profitability
When you are approaching a lender, consider bringing:
- – Last 3 years of tax returns for the business (or personal)
- – Statement of Cash Flow
- – Profit & Loss Statement
- – Balance Sheet
- – 3+ Vendor References
- – 2 Year Forecast
What Do Investors What To See?
The goal of investors is very different from that of lenders. Lenders are looking to secure a profit by lending money to those likely to be able to pay it back while investors are looking to get ownership of a business that is likely to succeed. Although investors are often more strict in who they are willing to enter business with, they look at the business through a more holistic lens, and can sometimes see value in businesses that are not yet profitable but can become so.
Investors typically focus on more intensive KPIs when determining who to work with. These metrics include:
Revenue Growth – is the business growing
EBITDA – how efficient is the business operationally
Customer Lifetime Value – How much is a customer worth over their lifetime to your business
Debt-to-Equity Ratio – How leveraged is your business
Budget vs. Actual – What did your company budget vs what did you actually spend
Cash Flow – How much cash does your company generate from operations
Forecasted Return on Investment – How much does the investor think they will be able to make on their investment
There are dozens of other valuable KPIs that investors may consider when determining who they want to invest in. These are just a few common ones you should be prepared for. Often, preparing for funding from an investor requires the help of an accountant or financial advisor. These metrics are not inherently easy to come by, especially for small businesses with less than adequate books.
Most Common Funding Questions
Do I need completed financials to get funding? Many sources of funding for small businesses require financials or bank statements.
How long does it take to prepare my books to get funding? Depending on the current state of your business books, it can take weeks or months to catch up and be ready for funding!
I've Got My Metrics, Now What?
Lenders tend to be easier to pull together a deal with than equity investors. For all but the largest of loans, their ask is pretty simple; come to us with your information and we will see what we can give you. We suggest bringing everything you might need to your first meeting. It’s often beneficial to look for lending from a bank you currently have funds at, as they know who you are and have a good idea as to what personal assets you have.
Finding an investor is tricky, although there are a lot of venture capital businesses out there who seek to bring potentially valuable businesses to the attention of their hunger community members. An investor is going to have a list of metrics they want to see, although being prepared with as many of them as possible can only serve you better. They often are expecting a pitch deck, a business plan, and a nice long sit-down over coffee or beer to get to understand your business better. An investor can add more to your business than cash though. Many investors pull from a depth of business experience in order to elevate the companies in their portfolio into higher levels of success.
You also might be interested in:
© 2024 · Vertices, LLC