The Triple “A” Funding System – Step Four – Six Stage Funding Analysis – Part Two
We are continuing to look at the Triple “A” Funding System, which is the system we use every time we work with a client. It is a uniquely designed 9-step system which speeds up the process of obtaining business finance from a lender.
In last week’s blog, we started to look at Step Four in the System, called the Six Stage Funding Analysis.
This week we conclude our look at the Six Stage Funding Analysis by analysing the remaining four headings.
If you haven’t already done so, you may wish to take a look back at last week’s blog to give you some context around the Six Stage Funding Analysis and then come back to this week’s blog afterwards.
- Financial Requirements
Now it’s time to tell the lender how much you want to borrow, and we don’t just tell a prospective lender: “our client wants to borrow £650,000”
That doesn’t tell the lender anything – other than you want to borrow £650,000!
In this section, we explain how much you wish to borrow by indicating how it has been calculated.
For instance, if you are purchasing a business or a property, we will indicate the purchase price, include any additional costs such as stamp duty and come up with a total. Then we provide information about how much cash you are injecting into the proposal. This leaves us with the amount you need to borrow.
The important thing is the lender now knows how much you need to borrow and how it has been calculated.
Alternatively, if you are refinancing an existing lender, we will include details of the loan outstanding to the current lender so that the new lender knows why the funds are being raised and how much.
Essentially as far as the lender is concerned, they want to know how much you wish to borrow, but they also want to know how that figure was arrived at which means we include within the Six Stage Funding Analysis the calculation we used to work out the loan amount you require.
In this section we explain the security that is being offered for the loan. Obviously if it is an unsecured business loan then this section would be left blank.
Otherwise this section is where we describe to the lender what the security will be for the loan and how much that security is worth.
If it is a commercial mortgage, then the security is likely to be the freehold commercial premises on which the funds are being raised. Similarly, for bridging loans and property development finance, again the property in question would be the security.
On the other hand, if you are raising asset finance, then the security will be the asset in question. This could be anything from computer hardware to a fork lift truck. The point is that the asset needs to be described in detail, including make, model, serial numbers if relevant and an estimation of value.
For invoice discounting and factoring, the security for the loan is the debtor book of your business. We require a copy of something called an Aged Debtor List which helps the lender understand the value of the invoices on which it is being asked to lend.
- Ability to Repay
In this fifth section of the Six Stage Funding Analysis, we cover off how the loan will be repaid.
Arguably, as far as a lender is concerned this is the most important section in the presentation. Of course, the lender wants to know about you, you background, your business plans, how much you want to borrow and how it will be secured.
But above all, any lender wants to know that you can pay back the loan or facility, be it a 20-year commercial mortgage, an asset finance loan or an invoice discounting facility.
As a result, being able to provide recent accounting information is crucial along with any up to date management accounts that are available.
This is not an accountancy text book and so not the place to go through in detail how the “ability to repay” is calculated, suffice to say this is an important section and we go through it with every client in detail before sending the application out to a lender.
One exception is bridging loans and property development finance. Because this type of funding is normally repaid from the sale of a property, rather than servicing the interest monthly, the interest is ‘rolled-up’ for the period of the facility and then repaid at the end.
- Additional Commentary
This is the final section in the Six Stage Funding Analysis and is where we include any other information that we feel is relevant to the funding application.
We also use it as an opportunity to emphasise or highlight any important or relevant information which we feel any prospective lender should be considering.
This could be anything from your background experience to the profitability of the business.
The point is, this is the section where we have a final opportunity to make sure we have covered all the information and made sure the lender has everything they need to make a decision on your loan application both quickly and efficiently.
Having completed the Six Stage Funding Analysis, now it’s time to send the application to a lender, and so we move onto the next step in the process – the Funding Application.
That’s next week.