Supporting a company’s growth occasionally requires external funding. Sourcing financing and investors is familiar territory in the startup world, but established companies also need funding, for instance, to make larger investments. In this article, I will go through some tips on seeking financing for a company from a CFO’s perspective.
Why is it important to seek funding?
Seeking funding for a company is important because it enables business growth, the development of new products or services, and helps the company to navigate through challenging times. Applying for funding at the right time and in the right amount can be key to success. Whether seeking a bank loan, venture capital, or other sources of funding, preparation and planning for the funding process are essential. A well-prepared financial plan and an understanding of different funding sources are critical factors that can influence the company’s chances of securing the necessary financing.
How to prepare for seeking funding?
Before the funding process, prepare an investor pitch deck, which outlines the business idea, the company’s background, market situation, competitive advantages, financial outlook, and other relevant information to help investors understand the company’s potential. This plan should include your business model: revenue sources, pricing model, and cost structure. In this, the CFO or a business controller can be invaluable. The clearer the plan you have before seeking funding, the more confidently you can convince investors and lenders that the company has potential for market success.
When preparing to seek funding, it’s important to undertake the following actions:
- Review your financial capacity and situation: Assess your current financial status, cash flow, and create forward-looking plans (budget, strategic goals, forecasts, and cash flow projections). Determine how obtaining funding would impact your company’s position.
- Prepare a well-founded business plan: A well-prepared business plan, forecast for the intended use of funds, expected revenue streams, and cash flow projections for the coming years are essential documents for financiers. These demonstrate the company’s financial capability and funding eligibility.
- The story behind the numbers: Pay special attention to the financial position and realistic calculations of your business; these are crucial for convincing financiers.
- Clarify available collateral: Lenders often require collateral for loans. Identify what collateral you can offer to secure financing.
- Start preparing early: Seeking funding requires time and careful planning. Begin early to ensure you can present a convincing plan and documentation to financiers.
Preparation for seeking funding is an essential part of the process, and careful planning, along with organized documentation, can significantly improve the company’s chances of obtaining the necessary funding.
Where to seek funding?
There are various funding sources available, depending on your company’s situation. Examples of external funding include bank loans as well as loans from finance and insurance companies and Finnvera. In addition to loans, you can also seek funding from crowdfunding platforms and venture capital investors.
Banks
Banks are a key player in the financial markets and offer a variety of financing services to businesses. They provide business loans, working capital financing, and other forms of funding that are essential for the growth and development of companies. Banks are a traditional and often primary source of financing for many businesses, particularly small and medium-sized enterprises.
Bank financing often requires collateral, which serves as security for the funds provided by the bank. Collateral can include real estate, securities, or other assets that the bank can liquidate if the borrower fails to repay the debt. Additionally, a well-prepared business plan is a critical factor in the bank’s assessment of loan applications. The business plan must demonstrate the company’s profitability, solvency, and growth potential so that the bank can evaluate the risks and opportunities associated with the loan. Banks are important financiers that support the growth and development of businesses by offering various funding options.
Venture Capitalists
Venture capitalists, such as business angels, are significant and innovative financiers who bring much more than just funding. They not only provide capital to companies but also offer valuable expertise, networks, and business acumen. Venture capitalists are known for focusing on the company’s idea, story, and future prospects. This means that they evaluate not only the current state of the business but also its potential for growth and success in the future.
Venture capitalists are often willing to take greater risks compared to traditional financiers, making them an attractive option, especially for early-stage companies that may have high growth potential but also greater risks. They can provide tailored solutions and support the company’s growth in various ways, such as strategic advice, leveraging their networks, and operational expertise. Additionally, venture capitalists can help companies gain more visibility in the market, open up new business opportunities, and assist the company in achieving its goals more quickly and efficiently. Therefore, they are much more than just financiers; they often act as growth partners who share the company’s vision and help it achieve long-term success.
Public funding sources
Public organizations, such as ELY Centers, are important funding sources for businesses. They offer a variety of grants and subsidies that can be essential for the development, investment, and internationalization of companies. Similarly, Business Finland provides funding for companies’ research, development, and innovation activities.
ELY Centers grant development subsidies to businesses, which can support the development of new products or services, improvements in production methods, increases in energy efficiency, or internationalization efforts. These subsidies are often co-funded by the European Union. In addition, ELY Centers provide companies with training services, such as joint procurement training and recruitment training, which can help develop employees’ skills and acquire new workers. In these training programs, the ELY Center and the company jointly fund the training.
However, applying for public funding requires careful preparation and timely action. It is important for companies to familiarize themselves with the various support options, their criteria, and application processes to effectively utilize public funding sources. In summary, public organizations offer a wide range of grants and subsidies that can be crucial for a company’s development, growth, and internationalization. Companies must prepare thoroughly for the funding application process to make the most of these opportunities. Additionally, it is wise to organize monitoring and reporting for these projects correctly from the very beginning.
Other funding sources
Other funding sources are also important options for securing financing for a business, especially when traditional funding methods are insufficient or unavailable. These include finance and insurance companies that can provide various financing solutions for businesses.
Finance and insurance companies can offer businesses different types of loans, credit lines, factoring services, and other financing solutions. They can be a good option, particularly when a company needs more flexible financing or specialized expertise in financing specific industries. Additionally, other funding sources may include various options such as leasing services, grants, and product development loans.
Leasing is a good alternative for acquiring equipment or vehicles without large upfront investments. Grants and product development loans, on the other hand, can provide companies with the opportunity to receive support for specific projects or innovations. It is important for businesses to explore various funding sources and choose those that best meet their needs and objectives. A diverse range of financing solutions can help a company secure adequate funding for different needs and enable business development and growth at various stages.
Summary – Seeking Funding for a Business
- Consider which funding option might be the best for your company.
- Create a clear plan and prepare the necessary documents to convince the financiers.
- Emphasize opportunities, but also be open about challenges and risks.
- Think about whether your company might need external financial expertise to apply for funding.
If you would like to discuss suitable funding options with a financial expert, please contact us at Finaly!
