There is the temptation when applying for business financing to omit things that are negative and gloss over other things you personally don’t consider to be important.
The result is this semi-complete story of what you need financing for and the justification as to why it should be granted to you.
And while you could be well justified in not wanting to provide all available information, here are few things to consider when putting an application package together.
First, never purposely lie or exaggerate anything you put forward to a lender or investor. If you ever get caught in a lie, regardless of the size, the game at that point is typically over as the lender or investor may no long view you as credible.
Second, never hold back information that would be considered material to the business or the financing facility being requested. If something is material, then by definition it’s important and can cause an impact to other parties like providers of capital.
Third, provide what is requested as completely, accurately, and neatly as possible. You can make judgment calls as to whether or not you wish to provide certain items, but this is also one of the fastest ways to get declined. Remember that especially in the case of debt lenders, their financing requirements tend to be quite rigid. If you can’t provide what they ask, then they will just pass on the opportunity.
Fourth, proactively explain all negatives that are most likely to be detected during due diligence anyway. The best examples are negatives in business and personal credit reports. The first thing a debt lender will do after receiving an application for financing is pull the applicant’s credit profile. If there is no proactive explanation of any negative items that may appear, then the lender is left to draw their own conclusions.
Fifth, be conservative in your go forward estimates and have as much back up as possible to support your assumptions. Too many times the application is lost at the point of proforma financial statements that don’t reconcile or are too “pie in the sky” for the lender’s or investor’s liking.
Nothing is worse than to be 90% of the way through a business financing process where the finish line is in sight, only to be declined close to the end due to some non disclosure or inaccuracy that could have been dealt with in the application without impacting the financing decision.
Making assumptions of what you think is important or germane, versus what the capital provider wants to review, can be suicide to a deal. Providing near full disclosure, if at all possible, avoids this from being a problem.
And remember that even if you do manage to secure funding through what I’ll call creative disclosure, the longer you have the relationship with the lender or investor, the more likely the truth will be found out anyway.
If the capital provider has the ability to demand repayment, they likely will, potentially putting you into a major bind.
Recently I was working on a client’s financing request and had a business financing solution arranged twice, but got blinded sided both times when the lender’s due diligence turned up non and/or incorrect disclosure issues.
Not only was the whole process a big waste of time, but if full disclosure was provided from the start, completely different sources of financing would have been approached that were more relevant to the whole story.
Securing capital is all about the story. But nonfiction is preferred over the alternative.