There are a number of fundamental reasons why people borrow for smaller business operations. For fledgling and start-up businesses, this will likely be for the purchase of working stock and equipment or to provide a reserve of working capital.
For the more established business, finance may be sought as an injection in order to stimulate further business growth.
Regardless of the underlying reason, consider the following commonsense tips before making a formal approach to a lending institution.
Understand the state of related businesses
Whether it be a metal workshop, an automotive crash repair garage, or a plastic welding venture, the commercial wellbeing of any small repair business is intimately tied to the larger industries that support it with customers and trade. For example, a company providing repairs and maintenance work for spas and hot tubs is reliant upon the number of customers in the region who own those products. In the same way, a panel beating business relies upon local trade from car and commercial vehicle owners.
Before approaching a lending institution for finance, spend some time researching related business– in other words, the potential client base for the repair business. This prior study will not only provide a personal sense of commercial perspective, but it will also demonstrate to the financier that the potential borrower has done their homework in studying the market.
Formulate a clear business plan
Spending some time researching the potential market is a good precursor to the next important fundamental – developing and documenting a sound business plan. Once again, this exercise will not only be of great personal benefit in clarifying just how realistic the business objectives are, but importantly, it is the key document that a finance lender will employ in making their decision whether to extend finance.
The business plan assists the business owner in identifying commercial threats and opportunities. It should typically include the following key information:
- A general description of the business and the industry it is involved in.
- An analysis of the business competition.
- The sales and marketing plan to be implemented.
- Projected sales and financial position.
- Cash requirements.
A well-researched, concise business plan will go a great way to instilling confidence in the lender and put them on-side with the business finance proposal.
A good range of business plan templates can be found on the internet and will assist in directing thinking to research these key areas.
Plant & equipment financing
When considering options for acquiring plant or equipment, generally, a decision is made to either lease or purchase. A lease typically involves a lower commitment than an outright purchase, but there may be some restrictions on the equipment lease contract with regards to how you use the equipment.
For financing equipment purchase, the financier retains an interest in the asset until the money and any interest is paid back. A benefit of purchasing over lease is the greater degree of freedom in operating and customizing that equipment.
Prior to approaching a financier, investigate the range of potential equipment options available for your intended purchase. Consider presenting the financier with a range of potential options which will ably meet the needs of the business.
Preparation is key
Spending some time in preparation and market research prior to that all-important meeting with a financial lender will go a long way toward inspiring confidence in the business proposition and assist the business proprietor in seeing the way forward clearly and realistically.