Money
Issue No. 39 - February/March 2008
Why finance applications get rejected
by Pamela Brombal
In SA’s current business environment, there’s no shortage of finance looking for a home. Securing that finance is another matter.
Despite the solid economic conditions here, there are still cases of companies with credible business ideas who have been unable to fund their next growth stage.
This is the major challenge facing many growth-oriented companies.
But why is that?
Obtaining finance – whether debt or equity – isn’t about getting a free handout.
Financiers such as banks, private equity funds, private investors and other businesses understandably want a reasonable return on their money. They have to be convinced the business they invest in will deliver on its promises.
Poor performance among the ‘Three Cs’ of proposals – character, capacity and collateral – is one of the key reasons businesses are rejected for finance.
You can have a sound business idea but if your financier is not confident in your ability to manage the business, service the debt provided and provide sufficient security to cover the facility, you will struggle to attract the money you need for growth.
Character
Of the several reasons why finance requests are rejected I find lack of faith in management is probably the most important. After all, business success hinges on management.
Financiers need to be convinced the key managers within the business have the character and ability to manage the business successfully.
If a company’s management cannot articulate and execute a well-formed business strategy financiers will lose faith in management’s overall competence.
Presenting the business concept and the company’s overall strategy poorly is likely to sound loud warning bells.
Financiers are also wary of backing SMEs that are having problems with key personnel. For example, a business based on selling a specialised, niche prod...
