How to obtain financing from financial institutions
For both start-ups or established companies, access to financing is crucial for business development, but lenders and investors will always consider that projects have a certain degree of risk. What’s the solution? Be well prepared.
Preparation is the key to success.
Whether it’s to renew equipment, acquire new premises or administrative offices or diversify the service offering, each project needs funding to be carried out. But to get the invaluable help needed from financial institutions, there are certain steps that can maximize your chances of obtaining financing.
Step 1: Modelling your project
It might seem simple, but there’s nothing better than pencil and paper for drafting your project’s groundwork. Take the time, think about it and put your ideas and objectives down on paper. In fact, setting one or more targets is the first thing to do. Would you like to diversify your activities? Improve your productivity? Revamp your distribution centre? Acquire competitors? Give yourself a goal to attain. This first step is the cornerstone for launching your project. Don’t forget that your mission must align with your business’s operations.
Step 2: Gathering information
Research! Consult online articles on the topic, use the tools at your disposal and talk about it to people around you and your business partners. Ask yourself the right strategic questions: how much financing do I have available? Have I taken into consideration all of the steps to succeed? Did I forget anything essential to properly develop my project? By asking yourself these questions, you will obtain a wealth of information and can set up a budget that meets your expectations. Furthermore, by talking with professionals in the industry, you will get a better idea of your project’s costs and feasibility.
Step 3: Budget and profitability
What will this project provide in terms of short-, medium- or long-term gains? Will I lose money? If I invest five million, how much of a return will I get annually? There are so many questions that you need to answer. This is why it’s so important to set up a budget for your project in order to measure its profitability and the capital needed to complete it. We also strongly recommend, based on your ambitions, to perform a variation analysis by defining certain scenarios: optimistic, pessimistic and realistic. This will enable you to properly master the financial aspect of your process and determine the impact of the related risks. Don’t hesitate to call on an accountant to develop your three scenarios and advise you as to which one to adopt.
Read our article: why accounting in business is so important?
Step 4: How do I finance my project?
Once you’ve got all the information you need, you can start thinking about financing. Whether you choose personal investments, local capital or financial institutions, keep in mind that there are also numerous subsidies available to help you attain your objectives. Additionally, according to your business’s industry, there are even government grants.
If you’re involved in research and development, don’t hesitate to seek expert advice from a firm such as Raymond Chabot Grant Thornton to benefit from the tax credits available exclusively for this purpose.
In most cases, you will enlist the help of financial institutions or lenders to finance your project. Your banker will be your first business partner and it’s important to involve this key player in your process who can help you find the best solution adapted to your situation and objective. Bankers can assess everything based on your company’s current profitability and overall financial impact by analyzing the business’s financial capability to reimburse its investment in addition to the guarantees it can offer. It’s essential to properly prepare your file and have thought of all of this beforehand. The more you will be able to demonstrate the profitability potential and positive impact on your business, the more your banker will be likely to get onboard. You want to be ready when it’s time to present your idea.
At Operio, our business advisors can support you throughout the process and help you build up your project. To benefit from a free consultation with one of our dedicated experts, click here.