Your Financing Needs for Business Growth
3. Determining your financing needs
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Business activity
Reference section in the document
Purchase equipment, another business, land
or building, or inventory and supplies
Expand my successful start-up business
Sell overseas to a new customer
Urgent cash to pay staff, invoices, or rent
Repay another loan
Go to
Equity investor or venture capital
Go to
Repay another loan
Go to
Financing for international trade
2
3. Determining your financing needs
Get working capital or a business loan
Go to
Access a business loan
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First, list the items required. Show landed, installed and annual maintenance costs together with realistic additional revenues
or production cost savings they will generate per year. The process below will help you decide on your course of action.
Will the purchase
contribute more to
profits /
competitiveness /
business value than its
total lifetime costs?
No
Yes
Don’t do it
No
Yes
Go to:
What
financing
products
match?
Just go ahead
Do you have enough
free cash to pay your
business operational
liabilities
and
the
purchase/installation
Guidance notes:
How much does your proposed purchase cost? Is the price appropriate?
Evaluate functionality: is it nice to have or a must have?
Do a realistic cost/benefit analysis of the proposed purchase
Prepare cash flow projections including loan arrangement fees and charges,
loan interest and capital amortization repayments.
3
3. Determining your financing needs
Table of contents
Determine your financing need
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Guidance notes:
Check requirements of potential lenders
Check your status/score with Credit Reference
Bureau (business + private)
Prepare a business description, budget, & plan
Verify the coherency of accounts and budget
Check references for potential lenders online
Prepare business (and collateral) documents
Decide what you can repay and when
Are you
able and
willing to
borrow?
No
Yes
No
Yes
Is a grant
available?
Find & Apply
for a
grant
if
you meet the
conditions
Does your business
have 3+ years stable
transactions or
banking records?
Would you give up
some business
ownership or control
to achieve growth?
No
Yes
Go to
Equity
investor or
venture capital
Go to
Unsecured
loans
Go to
Improve
your cashflow
No
Yes
Go to
P2P
lending &
crowdfunding
Do you have
assets that
could be used
as collateral?
Yes
No
Go to
Secured
loans
4
3. Determining your financing needs
Will your buyer
consider a pre-
shipment
advance?
Yes
Go to
Buyer’s
pre-shipment
advances
Table of contents
Determine your financing need
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Guidance notes:
If asset sales will not be enough to pay creditors, seek
professional and/or legal guidance
A loan will buy time but doesn’t solve the problem.
Consider reviewing all your cash flows, reducing non-vital
expenditures, or selling any unused assets
For further reading on how to deal with cash shortages,
see
this link
The decision-tree below will help one decide how to deal with an urgent cash need for the business
Can you squeeze
more cash out of
business
operations?
Yes
No
Go to
Equity
Investor or
Venture
Capital
Go to
How to
free up more
cash
Yes
No
Go to
Access
to loan
financing
Is your
business
solvent and
investable?
No
Yes
Close the
business
, sell
assets to pay
creditors
Shorten the time between cash
in & cash out,
increase revenues
or reduce expenditures
to
solve
the problem permanently
5
3. Determining your financing needs
Go to
Buyer’s
pre-shipment
advances
No
Could you repay a loan or an
investor?
Table of contents
Determine your financing need
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Will
buyers
pay
quicker if
you call
them?
Can you sell an
asset to free up
cash quickly?
Can you discount invoices to get
cash earlier?
Offer discount & link it to date of
payment, or negotiate advance
payment/ open account
Can you get a
bank loan or
overdraft?
Negotiate a
bank
overdraft or
loan
Call buyers ask the regular ones
to set up Payables Financing with
their bank and credit insurer
Sell it to a
buyer
with
ready cash
If you have stable
sales, can you
sell your
accounts
receivable
Go to
P2P
lending &
Crowdfunding
Go to
Factoring
or
Forfaiting
No
Yes
No
Yes
Guidance notes:
A Business is “solvent” when the market value
of current assets exceeds the current liabilities
Insolvent businesses are normally legally obliged
to stop trading even though sales may be rising
6
3. Determining your financing needs
Yes
No
Yes
Go to
Buyer’s
pre-shipment
advances
No
No
Table of contents
Determine your financing need
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Have you
ever
defaulted on
a loan?
Yes
No
Default was >3 years
ago?
No
Yes
Go to
Unsecured
loans
No
Yes
Go to
Leasing
Do you have assets that
could be used as
collateral?
Yes
No
Go to
Secured
loans
Explain circumstances in
detail and what you do
differently now to be
considered for a loan
Can you lease the item?
Go
to
Leasing
Yes
No
Go to
P2P
lenders &
crowdfunding
Does your business have
more than 3 years stable
transactions or banking
records?
7
3. Determining your financing needs
Table of contents
Determine your financing need
Your business activities determine your cash needs and the appropriate financial instruments to consider. By doing your homework, evaluating costs and benefits, and matching financing options to your needs, you can make informed decisions to support your business growth and success.
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Presentation Transcript
3. Determining your financing needs Your business activity determines your cash need & Your business activity determines your cash need & what financial instrument you should look for what financial instrument you should look for Business activity Reference section in the document Purchase equipment, another business, land or building, or inventory and supplies Go to Do your homework Get working capital or a business loan Go to Access a business loan Expand my successful start-up business Go to Equity investor or venture capital Sell overseas to a new customer Go to Financing for international trade Urgent cash to pay staff, invoices, or rent Go to Urgent cash needs Repay another loan Go to Repay another loan Table of contents Determine your financing need 2
3. Determining your financing needs Do your homework Do your homework: this enables you to make : this enables you to make better informed business decisions better informed business decisions First, list the items required. Show landed, installed and annual maintenance costs together with realistic additional revenues or production cost savings they will generate per year. The process below will help you decide on your course of action. Will the purchase contribute more to profits / competitiveness / business value than its total lifetime costs? No Don t do it Go to: What financing products match? Do you have enough free cash to pay your business operational liabilities and the purchase/installation No Yes Just go ahead Yes Guidance notes: How much does your proposed purchase cost? Is the price appropriate? Evaluate functionality: is it nice to have or a must have? Do a realistic cost/benefit analysis of the proposed purchase Prepare cash flow projections including loan arrangement fees and charges, loan interest and capital amortization repayments. Table of contents Determine your financing need 3
3. Determining your financing needs What financing matches your business needs? What financing matches your business needs? Go to Equity investor or venture capital Yes Would you give up some business ownership or control to achieve growth? Go to Improve your cashflow No No Are you able and willing to borrow? Is a grant available? No Find & Apply for a grant if you meet the conditions Does your business have 3+ years stable transactions or banking records? Yes Go to P2P lending & crowdfunding No Yes Go to Secured loans Do you have assets that could be used as collateral? Yes Yes Guidance notes: Check requirements of potential lenders Check your status/score with Credit Reference Bureau (business + private) Prepare a business description, budget, & plan Verify the coherency of accounts and budget Check references for potential lenders online Prepare business (and collateral) documents Decide what you can repay and when Go to Unsecured loans No Will your buyer consider a pre- shipment advance? Go to Buyer s pre-shipment advances Yes 4 Table of contents Determine your financing need
3. Determining your financing needs Start with improving your cash flow; it s the quickest Start with improving your cash flow; it s the quickest and cheapest solution for and cheapest solution for urgent cash needs The decision-tree below will help one decide how to deal with an urgent cash need for the business urgent cash needs Shorten the time between cash in & cash out, increase revenues or reduce expenditures tosolve the problem permanently Go to How to free up more cash Close the business, sell assets to pay creditors Yes No Can you squeeze more cash out of business operations? Is your business solvent and investable? Go to Equity Investor or Venture Capital No Could you repay a loan or an investor? No Yes Guidance notes: If asset sales will not be enough to pay creditors, seek professional and/or legal guidance A loan will buy time but doesn t solve the problem. Consider reviewing all your cash flows, reducing non-vital expenditures, or selling any unused assets For further reading on how to deal with cash shortages, see this link Go to Buyer s pre-shipment advances No Go to Access to loan financing Yes 5 Table of contents Determine your financing need
3. Determining your financing needs Improving your cash flow when your business starts Improving your cash flow when your business starts to expand or contract: to expand or contract: How to free How to free- -up more cash up more cash Go to P2P lending & Crowdfunding Call buyers ask the regular ones to set up Payables Financing with their bank and credit insurer No Yes Will buyers pay quicker if you call them? Negotiate a bank overdraft or loan Can you get a bank loan or overdraft? Can you discount invoices to get cash earlier? Yes No No If you have stable sales, can you sell your accounts receivable Yes Go to Factoring or Forfaiting No Offer discount & link it to date of payment, or negotiate advance payment/ open account Go to Buyer s pre-shipment advances No Guidance notes: A Business is solvent when the market value of current assets exceeds the current liabilities Insolvent businesses are normally legally obliged to stop trading even though sales may be rising Sell it to a buyer with ready cash Can you sell an asset to free up cash quickly? Yes 6 Table of contents Determine your financing need
3. Determining your financing needs Transaction history Transaction history impacts your ability to get a loan impacts your ability to get a loan Go to P2P lenders & crowdfunding Default was >3 years ago? No Can you lease the item? No Yes Explain circumstances in detail and what you do differently now to be considered for a loan Have you ever defaulted on a loan? Go to Leasing Yes Yes Does your business have more than 3 years stable transactions or banking records? Do you have assets that could be used as collateral? Go to Secured loans Yes Yes No Go to Unsecured loans No No Go to Leasing Table of contents Determine your financing need 7
