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  Starting a business or buying an existing one requires a substantial capital outlay and the financing of a business is more complicated than it seems.

To process an application for capital, banks require a large variety of documentation that differs with the type of applicant, namely an individual, a partnership, an informal organisation or a close corporation. In most cases they also expect a prospective borrower to provide the following detailed financial information:

- Up to 3 years of the firm's financial statements, if available, including balance sheets, income statements, and cash flow statements
- The firm's pro forma financial statements (balance sheets, income statements and cash flow statements), in which the timing and amounts of the debt repayment are calculated as part of the forecasts.
- Personal financial statements, showing the borrower's personal net worth (assets less debt) and estimated annual income

A bank will not make a loan without knowing the personal financial strength of the borrower. After all, in the world of especially small businesses, the owner is the business.

To put it simply, they want firms with proven track records and plenty of collateral in the form of hard assets.

If you are buying an existing business which meets these requirements, it will not guarantee you getting the necessary financing, without investing a substantial amount of your own money.

To evaluate capital, the banker looks at equity investment of the owners in the business ? the more equity the better.

An alternative would be to convert the equity in your property into cash by means of a further mortgage on your property. In most cases financial statements would not be required. Our consultants regularly assist entrepreneurs to obtain the necessary finances.

For an assessment of your business financing needs please complete our 20 second Assessment form. Alternatively for more information on business finance contact one of our consultants at 086 110 6204 during normal office hours.

20 Second Assessment

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