Beyond The Business Plan: 5 “Critical Cs Of Credit” Investors And Lenders Are Looking For Before They Fund Your Business
Having a cutting and well-tailored business plan is very necessary for all startups. This document helps entrepreneurs to chart all essential aspects of the business and its operations.
The business plan supports business owners to itemize what their business is about, products and services, target customers, market trends, financial projections, and where the business wants to be strategic and focused.
Although writing a business plan does not guarantee 100% success, a business with a well-written plan will outperform the others without one.
Ultimately, a business plan is used to pitch business ideas to investors and lenders for funds. And good investors see beyond the business plan.
Most startups and entrepreneurs wonder why their viable business ideas a left unattended by some investors and lenders.
Truth be told before any investor will vouch for funding your business, he put a whole lot of things into consideration. It will be a surprise to know that some Angel investors actually don’t digest the business plan adequately. They pinpoint salient sections to make their final decision on investing in your business or not.
What do investors and lenders look for beyond the business plan?
These 5 “Critical Cs of Credit” are most important to investors, no matter how promising and polished your business plan looks. They are capital, capacity, collateral, character, and condition.
Beyond The Business Plan: 5 “Critical Cs Of Credit” Investors And Lenders Are Looking For Before They Fund Your Business.
1. Capital
Be it working capital or assets, investors will first find out how much capital the business owners have contributed. Lenders feel reluctant to give loans to small businesses that will use the funds as capital. These lenders such as banks, are not committed to funding under-capitalization or too much debt business.
2. Capacity
The availability of enough cash to meet financial obligations and the daily transaction is paramount to investors. Simply put, capacity here is adequate cash flow, which will enable the business to make a good profit. Investors and lenders look for this to ensure that the business venture is able to repay loans, dividends, and other financial responsibilities regularly.
3. Collateral
Lenders use this as “insurance” for the loan should in case your business fails. The personal assets of entrepreneurs; land, building, vehicle, or any other valuable item can be sold and the proceeds are used to settle the loan. Again, a little consideration is given to business assets and this happens when the personal asset is not up to the amount.
4. Character
Also, before investors and lenders put some money into a business venture, they evaluate the characters of the entrepreneurs, founders, and other key people in the management. Whiles you are looking at a polished business plan, investors are ticking honesty, competencies, experience, knowledge, abilities, and expertise. Once their money is involved, they are much concerned about who manages that.
5. Condition
Getting funding from investors and lenders comes with conditions. Loan repayment schedules, loan purpose, competition, interest rate, inflation, market trends and growth, location, and type of business ownership are considerable conditions for investors and lenders. Among these conditions are favorable and unfavorable. Some can be controlled by either the entrepreneur or the investors or lenders.
Conclusion
It is worth noting that the higher you and your business score on these five critical Cs, the greater your chances of receiving funding as a loan or investment from lenders and investors respectively. Wise entrepreneurs keep these in mind when preparing and presenting their business plans.