Some questions on financial challenges in business answered

What documents do financiers require when considering my application for business finance?

The information required varies between financial institutions. If the decision hinges on security, then a brief business background, financial needs, security details and financial information will suffice.

If it is based on viability, then this will be the focus. The investor wants to understand the business, its history, product or service, market, location and growth projections. Entrepreneurs must justify their need for finance as the decision maker wants to judge the viability and the risks.

This means providing sufficient information to ensure that judgement call whether it comes from a two-page document or a comprehensive business plan.

Meeting my monthly obligations is difficult and I cannot pay suppliers and creditors. What should I do?

Most businesses suffer from periodic cash flow constraints. The secret is planning ahead to avoid the problem before it becomes a reality. However, when it has become an issue, face the music. Do not run or hide from creditors and suppliers, but be honest – the problem will not go away by remaining quiet and hoping for the best.

Creditors hearing about problems via the grapevine tend to take radical measures. By approaching them, this is avoided.

Come to an arrangement with creditors. Pay a portion now and the balance over a prescribed period, but once committed, honour that agreement and deliver.

What deposit do financiers require and why?

These requirements differ substantially, but generally more is better. Also called gearing, this ratio illustrates the percentage of own funds to borrowings and demonstrates how much vested interest owners have in their business. The greater the outside funds, the higher the business pressure on repayment and profitability (due to interest and finance charges).

It is a sound policy to keep a healthy ratio of own funds in a business, as it illustrates how much risk owners have in their venture.

I am establishing a manufacturing business and do not believe in paying rent, preferring to own the premises.

There are substantial advantages to owning your business premises. It is an appreciating asset and if the interest rates remain constant, so does the instalment meaning inflation makes the instalment more affordable.

However, purchasing premises early in the business cycle is not always the best decision. It is a long-term commitment at the time when the business is settling down. Rather keep your options open.

The business may need larger premises within a few months or years. A commitment limits freedom, options and manoeuvrability. Establish the business and consider buying premises as a next stage of capital investment.