Your idea for expanding your business or starting a new one is ready. You have carefully created a roadmap for success with every issue planned and accounted for in a solid business model. The next step is to get the funding needed that will put your plan into action. What is the best approach to secure enough funding? How can you write a winning funding request?
It takes more than strolling into a bank with excitement. Notes and a few spreadsheets are not enough to get what you need either. Lenders want to see a written proposal that not only lays out your plans, but also shows how your bright idea will pay them back.
Typically, your proposal length will vary based on the complexity of the venture and the amount of funding you require. Some proposals might be 10 pages long, while others are 100 pages. Describing plans for expansion is a bit easier than detailing how you can start a new business.
Even if the thought of writing a funding proposal sounds intimidating, it does not have to a moment of angst. There is a basic structure that you can follow to get the attention of those who can put their money where your idea is to make the business venture a success.
Outline Your Requirements for Funding
Before you approach lenders to fund your business venture, you need a clear picture of your funding requirements. Generally, your funding request should include:
- Current amount required
- Future requirements over the next five years
- Plans for how funds will be used, i.e. for capital expenditures, working capital or acquisitions
- Future strategic situational plans such as a debt repayment plan or buyout
Additionally, note the time period that the funding request should cover. Identify the type of funding you would prefer and the terms applied to the use and repayment of the funds.
A secret to preparing a winning funding request is to show a consumer need and how your expansion or new business will meet that need. Successful funding proposals tell prospective lenders that your solution to a need is also a profitable one.
Know Lender or Investor Requirements for Funding Request Approval
When preparing a successful funding request, you must also consider the needs of the lender or investor. Put yourself in their shoes and ask what does your prospective funder want? Have you gathered the right information to alleviate any concerns about loaning money to you? What details about your business experience and financial acumen will they require before approving your funding request? Your background and business plan are two primary components that every lending institution wants to determine whether your venture will likely succeed.
Several factors about your request are expected upfront whenever you ask for money. The first obvious factor is the amount of your initial funding requirement. Since you took the time to calculate this before approaching the lender, knowing this amount should not be an issue. In addition to giving potential lenders a funding amount, you will need to justify why you need that specific amount.
Outline additional funding that might be needed over the next five years. Again, be specific about how those additional funds will be utilized. This will leave little room for confusion when you approach the lender or investor for funding at a later date.
Typically, lenders or investors want to know how you plan to pay back the funds while keeping your business afloat. For this, you will need a repayment plan along with information that shows assets that can be used as collateral if you default. Tailor your request conservatively for a traditional lender; angel investors may have a higher risk threshold, but will still need to know how their investment in your business will succeed. Some investors may also want to see an exit plan.
Elements of a Winning Funding Request
Every funding proposal will begin with a brief introduction of you and your business proposition. Known as the cover letter, simply explain who you are, including contact information on company letterhead. Add a call to action at the end of the cover letter to directly ask for approval or to request a meeting. Include a title page that has a statement to introduce the proposal such as “Proposed Expansion of Burlington Transportation Services” or “Funding Proposal for New Workforce Solutions Staffing Agency.”
After introducing yourself and the proposed project, begin a section to discuss clients or customers that will use your product or service. These are the people who, for want or need, will pay for what you are proposing. Include topics that demonstrate your knowledge and understanding of the market. Depending on how complex the project, you might need to write a detailed summary.
Provide data and statistics that support your assertions about the market and need for what you are offering. Lenders and investors should be impressed with your market knowledge enough to give serious consideration for approving your request. Include everything you know that proves a need or desire for your business venture.
Following the section about the market, write about the product or service that solves the need you described. Include benefits, price list, service cost and any other piece of information that describes how much it will cost to provide your service or product. You might need to also include a description of the number of personnel, equipment and facilities needed to have a success project.
You will need to prove your business case with information either for expanding an existing business or launching a new one. In general, these pages are titled based on the reason for your funding request. Likely page sections include:
- Project Budget
- Breakeven Analysis
- Income Projection
- Cash Flow Analysis
- Cost Management
- Annual Budget
- Return on Investment
In addition, you will need to have a repayment plan for investors or lenders. Not only should the plan show how you will repay the funds, but it should also show a potential for profits. If submitting the funding request to an investor, include an exit plan.
Lenders and creditors need to know if strategic financial situational plans exist. As mentioned previously, these might include a buyout, selling the business or being acquired by another company. Each situation is a crucial factor in deciding whether to approve your funding request. In one way or another, your ability to repay the funds is impacted greatly.
If you have taken serious due diligence steps to plan your funding needs, you should have a fairly accurate picture of what it will take to finance your new venture. Notwithstanding the instability and uncertainty of some industries, you want to draw a clear picture of your funding need. Including a timeline for each request with profit projections and repayment schedules can help to reinforce the idea that funding your project makes good business sense.
Additionally, your funding request should outline the type of funding – debt, equity – that will make a difference in what you want to accomplish. If you are looking to expand, include historical information that demonstrates past successes.
Before submitting the request, review what you have written and ask for input from a business partner or financial expert. Following these guidelines can help to produce a funding request that carries your business idea to the next level.
Source: New feed