Tool Box
Issue No. 62 - December/January 2011
Funding a growing business (Part 2)
by Kishen Vijayadass
In this second part of the series on funding your business, we look at banks and non-bank lenders.
This article focuses on working capital finance as this is often the most challenging form of finance to obtain. This complex area has many variables to consider, but let’s look at the basics.
Why do I need it?
Congratulations: more than likely you need working capital funding because your business is growing and you need to fund the cash flow costs of a growing business. Ask yourself whether there are any other means to manage the working capital requirements without borrowed funds, such as negotiating favourable payment terms from debtors and creditors. If your business is not growing and you require loans, it indicates financial distress and it would pay to have a close look at the balance sheet and operating results of the business.
How much do I need?
Don’t become under-funded: things typically cost more and take longer than expected and it is extremely difficult to get more financing when your business is in desperate need. A cash flow forecast will help you quantify what you need and when. It will also help you determine if the funds are short term working capital loans or the business requires long-term core funding.
When do I need it?
Applying for loans can take a long time - from two days to two months or longer, if it is a challenging application. It is important to understand how quickly you need the funds and whether your request, however simple, can be accommodated by your lender.
What happens if I need more?
As with anything in business, it pays to consider your financing strategy. No lender wants to be tapped on the shoulder every now and then with an urgent request for funds. It is worth thinking about your likely growth trajectory over the next three to five years before speaking to your adviser on what will work best. I often see businesses who plan ‘for the now’ and do not le...
