Securing funding is often a critical step for entrepreneurs and businesses looking to start or expand their ventures. However, navigating the complex landscape of business funding can be challenging, with many potential roadblocks along the way. To increase your chances of success, it is essential to understand the process and take strategic steps to get to a "yes" from potential investors or lenders.
In this post, we share 12 tips on how you get increase your chances of getting to a "Yes" in business funding. We explore key strategies and tips to help you secure the funding as well as tips to improving your business even if you aren't actively seeking funding.
Want Funding? Having a Solid Business Plan
A well-thought-out business plan is the foundation of any successful funding pitch. It should clearly articulate your business concept, target market, competitive advantage, and financial projections. Investors want to see that you have a clear vision and a realistic plan for generating returns on their investment.
A business plan may not be mandatory for all businesses, but it is good to have and can help turn a “no” to a “yes.” Newer businesses under 3 years old are the ones that will get the most impact when it comes to a business plan in the eyes of lenders.
Research Your Funding Options
There are numerous funding options available to fund your business, such as traditional bank loans, venture capital, angel investors, crowdfunding, and grants. Research and identify the funding sources that align with your business type, stage, and industry. Each funding option has its own requirements and expectations, so understanding them will help you tailor your pitch accordingly.
Grants are a great option but shouldn’t be the singular focus of a business. They can be extremely competitive, and it can take months to get a grant.
Showcase Traction And Milestones
Investors and lenders want to see evidence that your business is making progress and has the potential for growth. Highlight any significant milestones you have achieved, such as successful product launches, strategic partnerships, or revenue growth. Demonstrating traction and momentum increases your credibility and reduces perceived risk.
Sales (revenue/net income) are one of the biggest factors in lending criteria. You want to show as much growth through sales as possible prior to applying for a loan. This will give you the highest possible loan amount.
Build a Strong Network
Networking is crucial in the business world, particularly when it comes to securing funding. Attend industry events, join entrepreneurial communities, and leverage online platforms to connect with potential investors. Building relationships and establishing trust can open doors to funding opportunities that may not be publicly available.
Develop a Compelling Pitch
Craft a compelling and concise pitch that clearly communicates your value proposition and why your business is worth investing in. Tailor your pitch to each specific investor or funding source, emphasizing the aspects that align with their interests or investment criteria. Practice your pitch until it becomes natural and engaging.
Be Prepared for Due Diligence
When investors/lenders express interest, they will likely conduct due diligence to evaluate your business thoroughly. Anticipate their questions and concerns and ensure you have well-documented financial statements, legal contracts, and operational details readily available. Being prepared and transparent during due diligence builds confidence in your business.
Many lenders will do a background check on you that can turn up old (20+ years ago) arrests, tickets, money owed to the IRS, pending lawsuits, collections and more. You’ll want an explanation for anything that they find. If you have pending lawsuits, you’ll want to settle them prior to applying in most cases. If you owe the IRS back taxes, you’ll want to be on a payment plan with the IRS.
Improve Your Personal Credit
Your credit score plays a significant role in various aspects of our financial lives, including securing loans, obtaining favorable interest rates, getting credit cards and lowering insurance premiums. There are lenders that will lend to you with a low personal credit score but in many instances, you’ll be doing yourself and your business a disservice because you will pay higher interest rates and shorter loan terms (higher monthly payments).
You’ll want your credit score to be as close to 700+ as you can get. This will get you the most favorable terms and the widest choice of lenders.
Have Collateral Ready
Be prepared to show it and use it. If you have collateral, lenders will want to see what you have. They will attempt to fully collateralize your loan from what you have available. That means if you own a house, expect it to be used as collateral.
Many people don’t want their house tied to their business but that’s exactly what ends up happening. If the business itself doesn’t have enough collateral to cover a loan, lenders can put a lien on your personal residence or investment properties. This can cause issues when it comes time to sell or refinance. This is just something to keep in mind.
Not all lenders require collateral but if you have it, be prepared for it to be used as part of your loan agreement.
Highlight Your Team
Investors not only invest in ideas but also in the people behind them. Showcase your team's expertise, experience, and track record to demonstrate your ability to execute the business plan successfully. Emphasize the complementary skills and strengths of your team members.
Be Open to Negotiation
Funding deals often involve negotiation, so be prepared to discuss terms and conditions. Understand your funding needs, valuation expectations, and what you are willing to compromise on. Strike a balance between obtaining the necessary capital and maintaining a fair ownership structure.
Be prepared to take a lower amount than you expected. Many business owners overvalue their business or how much debt they can take on.
Leverage Success Stories and Testimonials
If you have satisfied customers or successful case studies, leverage them to strengthen your funding pitch. Positive feedback and testimonials from happy customers or influential industry figures can provide social proof and build credibility.
Learn From Rejection
Rejection is a common part of the funding process. If you face setbacks, use them as learning opportunities. Seek feedback from investors who turned you down, identify areas for improvement, and refine your approach. Persistence and resilience are key traits of successful entrepreneurs.
Conclusion: Getting To A Yes in Funding
Securing business funding can be a challenging and time-consuming process, but with careful preparation and strategic execution, you can increase your chances of obtaining the financial resources you need. Stay focused, adaptable, and resilient throughout the journey, and remember that each "no" brings you closer to a well-deserved "yes."
To get started, here are collections on the best grant options for your business and the best funding options for your business. If you want help from the Skip team to get funding ready or get to a "yes", check out our 1-1 membership options.
