By Frank Tagarira Getting financing takes time. Be prepared to wait weeks or months before any money actually changes hands. Don’t approach a lender when you are desperate for cash. You’ll greatly harm your chances of having your request approved. Instead, plan for your financial needs well in advance. Getting financing takes persistence. You may be turned down many times before someone agrees to provide funds. Don’t be discouraged; there are many sources who may be willing to help finance your business. Remain determined and don’t give up after just a few tries. If your business ideas are good ones, you will eventually be successful in obtaining financing. Ten Rules of Negotiating for Financing 1. Prepare a comprehensive business plan. 2. Be prepared to explain uses and benefits of the proposed loan. 3. Speak to the appropriate person. 4. Be realistic. Do not overstate your financial strength. 5. Give complete information about your business. 6. Seek a lender with whom you feel comfortable. 7. Negotiate repayment periods (and if you can-negotiate interest rates). 8. Give an impression of confidence and competence. 9. Carefully check all terms of the agreement. 10. Dress conservatively. 1. Prepare a comprehensive business plan, including an income (profit and loss) projection for one year and a cash flow projection. An overview of competition, composition of management and staffing, marketing plans and pricing strategy are also important. Lenders respond favourably to applicants who know where they are going and who have done their homework. If your strategy can be adjusted to alternative amounts of financing, request the preferred amount first and be prepared to submit the alternative plan if you meet obstacles. 2. Be prepared to explain uses and benefits of the proposed loan. Summarise the information in the Sources and Funds Statement in your business plan, and provide specific examples and supporting data for uses of the funds (e.g. estimates, list prices for equipment, etc.). 3. Speak to the appropriate person. With banks, as well as with all other sources, find out who will make the ultimate decision about your financing request, and then deal with this person directly. It is a waste of time to present your loan request to an individual who does not have the personal authority to lend you funds. If your loan has to be approved by some kind of board/committee then you need to go through your personal banker. 4. Do not overstate your financial strength. Be realistic! Guard your credibility like the very real asset it is. Remember, the investor will almost certainly verify everything you say. If you tell him your first quarter sales were N$95 000, be sure that this is true. Once your integrity and honesty are called into question, it will be difficult, if not impossible, to regain your lost reputation. Even if your misstatements are the result of a legitimate error rather than a deliberate attempt to make your business appear more profitable, the investor may feel that this is a good reason to question your overall business judgment. It’s a very good policy to never say anything you can’t support with data. 5. Give complete information about your business. It is wise to present all the information the investor requests. Most investors are required to have certain documents on hand to invest. Some are requested just as a formality and some are thoroughly analysed. Unfortunately, there is no way for you to tell the difference between the two. Prepare all documents carefully and double-check all facts and figures before turning over the information. It will be far better for a negative aspect of your business to be handled openly than for it to come up later under less favourable circumstances. This does not mean that you are under obligation to reveal all your fears and concerns about the business and its operations. It does mean, however, that you have an obligation to disclose material or relevant facts about your business. 6. Seek a lender with whom you feel comfortable. There can be wide variations among investors. Because you are turned down by one source does not mean that you will be turned down by the next. Avoid putting all of your eggs in one basket. Carefully scrutinize potential investors in the same way that you investigate any other major business decision. Investors and lenders are just like everyone else! You will feel good about working with some and not with others. Be sure to settle on one who can give adequate attention to your account and who explains all aspects of the financing relationship clearly and thoroughly. 7. Negotiate repayment period/interest (if you can). One should negotiate a repayment period, which will not choke cash flows in the business. Usually one has little/no room to negotiate interest obligations especially with debt financiers, in particular with banks, but interest may be negotiable with other investors. All lenders charge different rates. Be aware of what you are paying. That’s why it’s important for one to make detailed and realistic cash-flow projections in the business plan to check if you will be able to meet loan interest obligations and principal payments. 8. Give an impression of confidence and competence. No one likes to borrow money. It is perfectly reasonable for you to feel a little nervous when applying for financing, but be careful not to let your nervousness cloud your judgment. An investor needs to have a high degree of confidence in your ability to repay the debt or generate a profit. Be sure of your facts and rehearse what you will say. Give some thought to the types of questions you may be asked and consider the best responses. Again, remember that the investor is dependent upon you, just as your business is dependent upon the investor. You are both in a position to help one another. 9. Carefully check all terms of the agreement. Be sure you know what you are signing. It is perfectly appropriate to ask that your attorney or accountant review the conditions of the agreement. If you or your advisors do not feel comfortable with some aspect of the agreement, don’t hesitate to raise it as an issue. The time to discuss alternatives is before the deal is finalised. Once you have signed an agreement, you are legally bound by it. The investor will prepare the agreement for self-protection. Given this, it is not unreasonable to expect the terms to favour the investor. To a certain extent, this is inevitable, but try to prevent the insertion of any clauses or conditions that may present a serious hardship for you. 10. Dress conservatively. Dress to fit the environment. For this reason, it is a good idea to dress carefully when meeting with an investor, even if you do not normally do so when running your business. Remember, you are trying to give an impression of conservative good judgment. Be bold, be brave, be excited – live life to the fullest.