Creating a Financing Proposal

Whether you’re seeking money from a bank, a venture capital firm, a government program or any other source, you will be expected to provide a document that contains most or all of the following:

• Cover page: company name, address, telephone number, email address, website and key contacts
• Table of contents: referenced by page numbers
• Summary: one page about the company
• Industry Overview: overview of your business highlighting key dates and facts
• Management structure: background, qualifications and responsibilities
• The products and services
• The market: previous and forecasted financial performance of production and supply
• Financing outline: emphasizing application of funds
• Basic information: bank, accountants, lawyers, incorporation, board of directors; shareholders
• Appendices: detailed management biographies, product literature, valuations of assets, financial statements (preferably audited), detailed projections – profit & loss, cash flow and major contracts
   

The one-page summary following the table of contents can make or break your proposal. It should stand on its own in presenting your company succinctly. It can be modified depending on who will receive the proposal and for what purpose. The summary should state briefly:

• what the company is and does
• its history
• where its future lies
• what the company needs to get there (i.e., the amount and sources of money).

Keep it simple and honest, and you’re halfway there.
 

• Background - Overall picture of the company and how it has been formed:
  1. When it was founded and by whom
  2. How it was developed: dates (or years) of key milestones; major events
  3. How it arrived at its present position
      
• Management - Provide an overview of the key management personnel:
  1. Names, titles, ages, experience, education
  2. Responsibilities and contribution of each
  3. An organization chart, if available
      
• Products and services:
  1. Description (brochures, literature)
  2. Applications and uses
  3. Uniqueness and patents
  4. Customers
  5. Pricing
      
• The market:
  1. Development and growth
  2. Size and your share
  3. The competition
  4. Different channels of distribution
      
• Production and supply:
  1. Facilities: size, locations, special features, ownership; length and terms of leases, Equipment, present and potential capacity, overhead costs and allocation
  2. Costing: direct costing, how it’s controlled (mechanical/ computerized), reporting
  3. Employees: numbers, unionized, part-time/full-time, hourly wage rates
  4. Inventories: levels, reordering systems, control
  5. Major suppliers and average annual orders
  6. Purchasing: control, how it’s checked and responsibility for follow through
      
• Financial performance - Summary Profit & Loss that follows to establish project past and future performance. Detailed cash flow budgets, balance sheets and assumptions can be included in the Appendix. This section should include:
  1. Sales, cost of goods, gross profit, selling costs, administration and profit that should be shown back five years and forward five years, if possible
  2. Percentage of sales
  3. Comments on performance, including reference to balance sheet, return on investment (high/low), working capital (high/low) and other critical elements
  4. A high and low estimate for the future
  5. Your cash requirement, based on a worst-case scenario
  6. If possible, have an accountant prepare or at least review financial performance statements
  7. Cash flow forecast: at least Cash In/ Cash Out; Closing/Open Balance for three years (by month for the first year)
  8. An explanation and list of all your major assumptions (can be part of the financial details given in the Appendix)
      
• Financing outline - This is a brief section outlining why the funds are needed; e.g. you might list:
  1. SAR 50,000 to reduce payables
  2. SAR 65,000 to increase working capital
  3. SAR 85,000 to purchase assets (detailed elsewhere)
  4. SAR 50,000 to increase bank line to allow for bid and performance bonds on government contracts
  5. SAR 250,000
  6. Total: SAR 250,000
      
• If you are seeking debt financing, suggest a repayment period.
• Basic data:
  1. Bank (name, branch, address, phone number, key contact)
  2. Legal advisers (name of firm, address, phone number, key contacts])
  3. Date, place, nature of incorporation/sole proprietorship/partnership, and so on
  4. Authorized and issued stock
  5. Directors of company, addresses, other affiliations
  6. Major shareholders; number of shares
  7. Stock options, if any
      
• Appendices - Use Appendices for the detailed material that would clutter the main presentation. If your material is too bulky for the proposal, then provide a separate binder including:
  1. Detailed management biographies
  2. Product literature
  3. Letters of reference, commendations
  4. Patents, legal descriptions, major contracts, other legal documents
  5. Recent valuations (particularly if you are looking for a term loan or mortgage)
  6. Detailed description of buildings, equipment, and so on
  7. Market research, engineering, or other studies (referred to in outline only in the Proposal)
  8. Detailed profit & loss and cash flow projections
  9. Recent accountant’s/auditor’s financial reports
  10. Other materials relevant to your presentation
       

Your proposal should be simply written and to the point. While it should emphasize your strengths and the upside, it’s important to recognize the risks and the downside. This allows you to demonstrate that you understand the risks and know how to cope with them.

In this section, we’ll look at the factors that you should emphasize with the consideration that each source of capital has different criteria.

Modify the emphasis of your proposal according to:

• Bankers
  1. Security, particularly receivables and inventory
  2. Cash flow to cover repayment and interest
  3. Past performance
  4. Credit checks and reputation
  5. Collateral available/personal guarantees
      
• Term lenders
  1. Long-term and fixed assets
  2. Cash flow to cover repayment and interest
  3. Recent valuations
  4. Insurance policies
  5. Past performance
      
• Venture capital firms
  1. Management – experience and credibility
  2. Sufficient growth to provide required returns
  3. Availability of equity
  4. Financial commitment
  5. Liquidity: In three to five years, how do they:
     1. Get out?
     2. Go public?
     3. Sell to another company?
         
• Mortgage lenders
  1. Fixed assets and recent valuations
  2. Sale ability and condition of fixed assets
  3. Terms and conditions of leases, including other tenants
  4. Ability to meet interest and capital repayments
      

With a good proposal in hand, it’s time to reach out to the people who finance businesses. Here are a few tips:

• Start early. It can take up to six months to arrange the financing you need
• Start with the people you know and who know you. If your banker, lawyer, insurance agent, accountant, friends or business associates cannot help, then ask for referrals and introductions. One introduction is worth many cold calls
• Research sources before you make appointments. Get names of other clients, other typical businesses they finance, types of relationships they maintain, how they treat their customers (especially when a customer is in trouble).
• Don’t restrict yourself to one person. Get to know everyone who will influence the decision
• Go to those people who know your industry, even those financing your competition. Stay clear of newcomers or the uninitiated
• Arrange an appointment by phone and outline why you want to come in
• Send your confidential proposal, or at least the one-page summary, prior to the meeting
• At the meeting, outline your request briefly and then summarize key points (no more than five) from the proposal
• Be selective and targeted about shopping around. If you must, let it be discreetly known that you will be talking to others and test the reaction
• Be sensible in using your accountant and lawyer. One of them can accompany you to provide help or clarification. However, make sure you answer the questions asked by the lender or investor. You are the one they are going to rely on to run the business
• Talk “deal” or “relationship” early, but do not be too forceful about the type of loan or equity. Let it evolve, but stand firm on the main issues such as control and minimum amount needed
• Listen carefully to all comments. If you hear the same reactions from several sources, consider changing your plan or approach
• Set specified time limits for the first meeting. Have another appointment to go to after about 90 minutes. That’s plenty of time; any longer and you run the risk of repeating yourself and showing your weak points
• If you are turned down, learn why. Ask for reasons.
  1. Can you change your proposal?
  2. Who else could you see?
  3. What would he or she do differently in your place? The person may think you need more money than you’ve requested, which may be right
• Always offer to follow up with more information. Respond to requests for information quickly
• All businesses have risks. It’s important to identify them and determine how you plan to overcome them. Don’t forget the source is looking for them as well. You’ll raise yourself in your source’s estimation if you identify and deal with potential problems yourself

• Contact your local Business Banking Officer
• Call 920001816