Driving Growth

Finding the right funding partner

By: Kevin Fraser

As a private business owner, growth opportunities present themselves virtually every day. The thing is, not all of these growth opportunities are financially feasible. It’s essential, therefore, to reserve your time and resources for the opportunities that have the greatest chance of propelling your business forward—and to find the right funding partner to make those opportunities a reality. By following these three steps, you have a better chance of achieving just that.

Step 1: Clarify your growth goals

Finding the right growth opportunity is a lot easier when you know what your goals are. For example, do you ultimately want to expand into a new geographical market, go after a new customer base or set yourself apart from the competition with a new product development?

Each of these goals will have different funding requirements, timelines and impacts on your bottom line. By sitting down ahead of time and evaluating the proper metrics and information, you’ll be able to determine which investments will bring the greatest return. This calculated approach will also allow you to identify and answer difficult questions about your growth goals and develop a plan of action for achieving them—which will come in handy when searching for funding partners.

Step 2: Find the right funding partner

Given today’s favourable lending climate—driven, in large part, by low interest rates—many owners opt for debt financing when expanding their businesses. Like many things in life, however, when it comes to funding, one size does not fit all and debt financing isn’t your only, or necessarily best, option.

Whether you’re exploring subordinate debt financing, private equity or anything in between, it’s important to remember that each funding source comes with its own cost structure and lending preferences. While you obviously want to explore less expensive financing options first, your business’s ideal funding match may not be the cheapest option out there—and sometimes a combination of many different types of financing arrangements will make the most sense.

Step 3: Make a great first impression.

Like all businesses, funding partners are looking for arrangements that will allow them to meet their financial goals while minimizing their risk exposure. As such, it’s important to lay all your cards on the table—do as much prep work as possible to answer all of your prospective lender’s questions—and set realistic expectations.

 

In most cases, this will involve putting together a well-presented and supportable financing proposal, including a solid financial forecast. Taking these extra steps can pay off in the form of better pricing, relaxed security requirements, flexible financial covenants, reduced personal guarantees, minimal lender fees and more patient reporting requirements. After all, no lender expects you to be perfect. But if you can show that you have a plan in place—and you’re taking steps to minimize their risk—you’ll be more likely to earn their trust, and earn some perks in the process.

Growing a business is tough and, in most cases, nearly impossible to do on your own. By developing a clear roadmap, your chances of success rise significantly.

 

The author is a Partner at Grant Thornton LLP Canada. Grant Thornton International Ltd. is a leading global business adviser that helps dynamic organizations unlock their potential for growth. Punongbayan & Araullo (P&A) is the Philippine member firm of Grant Thornton International Ltd. For inquiries, you may direct them to 988-2288 ext. 760 or visit our website at grantthornton.com.ph