Key considerations to keep in mind when applying for working capital
All companies need working capital to start their operations. Working capital is also essential if your business needs a cash injection to move from one order to the next. There are definitely so many uses you can find for working capital that business owners definitely work hard to get their application approved for this type of loan.
If this is your first time applying for working capital, there are some helpful tips and considerations to keep in mind to get approved and avoid rejection. Here are some of these:
Assess your capital needs first.
Before you begin your search for equity investments, it is important that you first accurately assess how much you need. This is because if you ask too little or too much, you can end up damaging the relationship you have with potential investors or lenders. You can also end up giving up too much for funds you don’t really need.
To accurately assess your capital requirements, consider the following:
• Use benchmarking data to influence your costs and return on investment (ROI) forecasts.
• Always include inflation and commodity prices when forecasting your cash flow because your costs are likely to increase slowly over the years in many areas.
• To improve your overheads and margins, be sure to cut back on any unnecessary expenses.
• You can consult an accountant to review and verify your findings.
Make sure you make a good business case.
Once you have an accurate assessment of your company’s capital requirements, you need to analyze how you will present your business case to your potential investors or lenders. Start by creating an interesting and attractive business plan. Prospective investors and lenders will want to see your business case presented in black and white in this accepted format.
Your business plan should contain all vital and honest information for potential investors and lenders. These details should include:
• The amount of capital you need.
• Evidence and predictions to support your assessment.
• Your detailed plans for how the capital will be spent.
• The ROI you estimate for investors, including amounts and term.
• A summary of the company’s ability to pay the debts of the lenders.
• Evidence that you have taken the necessary precautions to minimize your capital requirements.
Consider the bootstrap.
Lastly, if you are still in the pre-start phase, learn about bootstrapping and find out if this might be the best option for your business. Bootstrapping refers to the practice of structuring a start-up business so that it can be launched with low capital costs and financed exclusively at profit when established. This allows the startup company to avoid the need to raise capital by taking on debt or generating equity.
Read more about how to apply for working capital here.