Author: Kuyra Timayev

For a successful application for corporate finance, seven corporate finance success factors are decisive. Whether an application for business credit is filed with a bank, or venture capital is requested from an informal investor, a private equity fund, crowdfunding or a credit union, it is precisely these success factors that pave the way for corporate finance. These are plan, experience, knowledge, perseverance, flexibility, passion and commitment. What that means for a successful credit application becomes clear.

Business Loan Application Process

1. Business financing plan

The application for business financing is always dependent on a plan. Not only a business plan but also a financial plan. That financial plan must meet certain conditions. Different financiers apply to different requirements regardless if it is a no-guarantor loan or a guarantor loan. In essence, it means that there must be sufficient profitability. That seems obvious. But in practice, financial plans prove to be insufficient. After the investment, the profitability appears to decrease. Not a good starting point for corporate credit!

Such a financial plan must above all be based on realistic assumptions and estimates of the prices such as the following:

• market size
• market shares
• costs for producing and delivering the product (or service)
• the general costs that are necessary to get the business model up and running. keeping, etc.

Within a conservative (cautious) financial forecast, there must be sufficient room to meet the financial obligations. But the financial impact must also be related to the existing market conditions. What are the market prices of competitors, what are realistic cost levels, etc? And: where do they appear?

The nature of the business case is of course also important here. Is this an existing company in a market with undiscovered market potential? A company where a good benchmark is available? Or are we talking about a ‘startup’ in a risky and dynamic business environment with an international market reach? That makes a big difference between the different types of financiers. A credit bank is more likely to be convinced based on the proven financial performance over the past 3 years. While a risk financier is more stimulated by market potential and scalability.

Many informal investors only step into a new business model with – potentially – 5 times better products or services. Or: a cost-effective proposition: that costs 5 times less for a comparable product. A business model with only a marginal or comparable financial performance does not have to rely quickly on support from risk financiers for a starting company. Because experience shows: gradually there are setbacks. Then additional costs and investments must be made. With a marginal business case, the return on investment ROI is ultimately too tight. With all the financial problems that entail.

2. Knowledge for business credit

It helps if a business financing applicant has the right knowledge. And this knowledge also displays in a good way. Knowledge of the products, the markets, the competitors, the trends, the most important suppliers, the customers, the opportunities and the threats. Thorough knowledge arises from experience but also preliminary studies. A financier entrusts his money to entrepreneurs with solid preparation. Who has prepared well? Who has studied the market? Who can take timely measures based on that knowledge? Who can adjust the business case? The ability to interpret the dynamics of the market and to be able to develop the right steps from there is an important plus.

3. Display experience for business financing

For a business credit, displaying the right experience is a big plus. Experience with a comparable role in business. Is the correct commercial, operational and financial experience available !? And if not: how is that solved? And is the experience also within the same or comparable industry? Leading a development project for innovative technical products is different from running a construction company or a transport company.

4. Perseverance

But the perseverance of the credit applicant is also essential. And also to what extent is that supported by his team. The road to success has many obstacles. The business goals are on paper directly behind the horizon. But there are many obstacles on the path there. And they must be taken. If things go wrong, management must have the resilience to get through it. No business financing without perseverance. Because the provider of business financing does not want an active role in business operations.

5. Passion for corporate credit

Passion also counts firmly. The passion for the product or service is crucial when applying for business credit. An absolute confidence in a distinctive position in the market. Added value for customers and a decisive distinctive character compared to the existing and competitive offer. And the passion shown is also contagious: the financier is positively influenced. The passion is carried as fast. And if the financier feels that way too, then the customers and suppliers will also notice it. The basis for solid profitability has then been laid.

6. Flexibility

Flexibility is an essential basis in the borrower’s thinking and actions. Perseverance and passion are good qualities. But an open attitude to the environment and the ability and willingness to bend along with new developments is just as important. Because in the period between the start and a mature operation, the internal and external operating conditions change. This almost always affects the flexibility of companies. If the original plan is maintained too persistently, the right opportunities will not be used.

7. Commitment for business financing

The borrower’s own commitment is always expressed by a substantial contribution of its own financial resources. Some applicants for business financing say with too much ease: that investor only has to do 100%. We contribute our knowledge and experience. That is a nice idea. But no chance with the application for working capital. It is the question of the tear in the pants at a so-called discomfiture.

Summary

The seven success factors for business financing are plan, experience, knowledge, perseverance, flexibility, passion and commitment. Evaluate your own score on all these aspects. Where are the blind spots and points of attention? The preparation of an application for business financing therefore requires a fair reflection on these success factors. This helps considerably to build the right bridges to corporate finance.