Whether you’re a new start-up or an established company seeking to grow, you’re likely to need funding to turn your dream into reality. However, needing extra financing is not the same as being fundable, which means the ability to attract the financing you require to put your plan into action.
Of course, with all kinds of financing opportunities out there, your business may be fundable by angel investors or a non-bank lender even while it fails to meet the lending criteria required by a traditional bank. While different investors will have different lending criteria, they’ll all be looking to make good on their investment. Here are three important points to consider when evaluating whether your business is fundable or not.
1. Do you have a strong business plan?
However unique your initial idea or concept, its value to investors is pretty low unless you’ve got a solid business plan to back it up. Moving from a great idea to a saleable product or service takes work, and investors will want to see the numbers to back up your enthusiasm. A detailed financial analysis with sales projections and growth forecasts is essential for any new business starting out. If you’re an existing business, you should already have plenty of hard data to demonstrate how your business is growing, but you’ll also need details of how you intend to use the extra funding to make your business even more successful.
A good business plan is not just to convince investors to risk their money. It’s also the road map with which you can plot out the future growth of your business. Once you’ve got a detailed financial analysis in place, you can refer back to it for future budgeting and credit assessment.
2. Is your business profitable?
Every potential investor will want to see evidence they can make a comfortable return on their investment, so your company’s profitability will directly affect its fundability. At the very least, you’ll have to show you can make repayments in the short-term while you wait for profits to improve in the mid- to longer-term. While many new businesses lose money in their first year, evidence that you’ll be turning a profit in the following 2 years will help make you fundable.
3. Are you willing to put in whatever you’ve got?
Investors may want to see that you’re willing to risk your own money before they lend you theirs. Starting up a company with your own funds, however meager, is more likely to impress a potential funder than just showing them an idea on paper. If you don’t have money of your own, friends and family may be able to provide valuable seed money for smaller businesses, but don’t treat their investment any more lightly than you would a professional lender.
If you can answer these 3 questions affirmatively, there’s a strong chance your business is fundable. Always shop around when seeking funding – there are many alternative forms of finance on offer so you need to find the funding model that works best for your business.