20 things that will improve your chances for loan or equity funding

Funding decisions are not just based on getting the numbers right. A lot more goes into deciding whether your project can be funded and by how much. This is a startups’ guide to loan as well as equity funding Whether you are a fresh startup or a multi-million dollar conglomerate, you always need outside funding. You need funding for starting up, for new projects and business lines, for building your brands and for working capital amongst other things.

The ratings

We rate each item for high or low importance to the banker or the investor. High means a score of three or more on a scale of five, low obviously means two or less. Investors here include seed investors, angel investors, venture funds and private equity funds.

Depending on the risks involved and the timeline for repayment, you might approach a bank, a peer organization (for short-term inter-corporate loans) or an investor like a private equity fund, a VC or an angel investor. Each of them will follow their own process to determine whether to fund your request and how much to fund.

While there is a lot of number work that goes into this decision, there are a number of other factors that play a significant and often more important role in deciding both, whether you are funded and how much you are funded by.In this piece, we will take you through 20 such elements that could be the make-or-break factor in your being funded

1. The business plan

The business plan is the basis on which funding is done, whether it is a loan or a venture investment. The business plan is where your funding pitch starts. Enough and more has been written about how to create the best business plan. Fact is no two organizations look for the same things in a business plan. Some banks, for example, have standard formats. Further fact is that a business plan is just not enough. Read on to find out what else can swing the deal for you.

2. Your existing brands

Well-established and easily recognized brands are a big plus in pushing your case for funds. In case of loans, you can actually get your brands valued and can provide them as collateral. Otherwise, your brands per se are not that important in the case of loans. In the case of investments, particularly late stage funding like private equity, the value of the brands go a long way in enhancing the valuation of the business.

3. Infrastructure (land and buildings the company owns)

Bankers place a very high premium on owned infrastructure when deciding the extent to which to fund you. Investors on the other hand do not place too high a value on this, unless you are in the business of infrastructure or real estate (in which case your land bank is your asset), in which case, you need to approach only those who specialize in funding such businesses.

4. Your own house and property

We are talking of property in your personal name as against property in the name of the company. In the case of equity investments, this is a very insignificant factor and may come in for discussion only as a casual point about your background. On the other hand, property in your name is a significant input into a loan decision by a bank. If there is property of significant value in your name, it can have a significant impact on the amount of loan you are sanctioned. Such loans will be against your personal guarantee and the property becomes collateral guarantee for the loan.

5. Intellectual property (patents and copyrights) you own

Intellectual property, along with execution finesse (read as capability of the team), may be what sets you apart from a very similar competitor. Obviously, both investors and banks rate these very highly. Investors will perhaps give them a little more importance than bankers, say a 5/5 as compared to a 4/5. Now you know why it is important to recognize and protect any intellectual property that you create.

6. Your balance sheet

The balance sheet is the Holy Grail for the banker and a healthy balance sheet probably gets more importance in their books than a good business plan (cash flow plan). For running companies, bankers are known to give the past balance sheets the maximum weightage in loan decisions. Investors on the other hand do not place too much focus on the balance sheet in the case of startups or new businesses. In many cases, your reason for seeking investments may be the very lack of a healthy balance sheet! Only in late stage PE funding does a healthy balance sheet have a significant role.

7. Big ticket clients

This is the ultimate form of name dropping in this business, and believe me, it works; with both bankers as well as investors. Nothing proves your value to them as having the confidence (business) of an established, big name. So, if you are in the Internet research business, having Google and Yahoo as clients adds punch to your quest for funds. On the other hand, having only one client, even if it is a big name, may not be as good, unless you are an ancillary. And then, your funding request is obviously going to be limited or enhanced by the financial wellbeing of the principal

8. Your bio-data

This one is a bit like your board exam marks. On every occasion, you see a need to put it down in a form popping up. And everywhere from college to management school entrance to the civil services, there is a minimum cutoff for board exam marks. Your bio-data becomes particularly critical if you are starting up. Investors particularly have nothing much to go by in making an investment decision. Even when you are past the startup phase, your bio-data still adds (hopefully) to your case for funding.

9. Your team’s bio-data

The rating is the same as your team’s bio-data. The point to be noted here is that in the case of investments, if the team brings in complimentary skills, then that becomes a bonus point.

10. Confirmed order in hand

A banker giving you a loan, particularly a working capital loan, is looking at a definite and short-term horizon. So, confirmed orders in hand are rated highly there. An investor on the other hand is looking at longer time periods. So, a single or a set of small orders will not have a significant impact unless two things happen. One, you are an absolute startup and you already have a big order based on an idea or a prototype. Two, you have a really huge—in terms of quantity or time—order.

11. Great new idea

Nothing epitomizes the difference between a banker and an investor than their reactions when asked to fund a great new idea. A banker would in all probability yawn and move on to the next request. That is how his business model works; there is no point complaining. An investor on the other hand will get excited and could end up funding you to the tune of a few billions!

12. Prototype of a great new idea

If anything excites an investor more than a great new idea, it is the prototype of a great new idea. In fact, many investors admit that you are better off approaching them with a working prototype rather than just an idea. The response of the banker remains the same as it was at the idea. A banker deals with business activities in the current horizon; an investor invests into the future potential of current ideas.

13. First client for a great new idea

A banker’s response to your first client is going to be only marginally better than the response to the idea itself or a working prototype, unless of course the client is bringing in a tremendous volume of business. An investor will look at your first client as a validation of your idea and will look at whether the business model is scalable.

14. Credit rating

A good credit rating is a big plus point when it comes to getting a loan. Actually, it helps you not only in getting a loan, but also in getting a better interest rate. On the investment side, a credit rating has little impact, unless again, you are seeking PE investment where it might add some brownie points.

15. The way you dress

We are on to the soft factors. And now the navigation becomes a wee bit tougher. No one may openly admit that the way you dress will have an impact on your funding application. At the same time, I am sure that you would not be willing to risk it by dressing shabbily! Based on information we have, I would venture to guess that the way you present yourselves would be more critical in the case of equity investments than in the case of loan funding. Also, remember that your stakes are higher in the case of equity investments; so be doubly careful.

16. A recommendation

Let me let you in on a secret. There is almost no decision in the world that a relevant recommendation cannot influence. And financing decisions are no different. A VC firm gets a hundred or more pitches a week. How are they supposed to objectively investigate each one of them? A relevant recommendation can short-circuit the process and give you a quick hearing, if not funding itself. The case with a banker is similar. The operative word, of course, is the “relevant” recommendation. A known industry (your industry) expert or someone close to the investor is a good choice.

17. You on the Web and your Website

Let’s assume for the moment that you are a startup entrepreneur who is making a pitch to an investor. Where are they going to find information about you? A search engine is an obvious stop. So what does the search engine show up? Do you even show up? Is there anything negative that comes up? What about your Website? Does it give enough information about you, your team and your business? The same applies if you are pitching your case to a new bank or a new banker in the same bank

18. Your CA/advisor/investment banker

This one is like the recommendation from an industry expert. Only, in this case, we are talking of financial industry experts! A good financial advisor who knows how a particular investor or bank works, what sort of projects they are interested in and what documentation they need, can make a huge difference to your case. How do you find the right one? Ask around those who have been there and done that before.

The ratings
	Banker	Investor
Business plan	High	High
Your brands	High	High
Infrastructure and land/buildings the company owns	High	Low
Your own house and property	High	Low
Patents and copyrights you own	High	High
Your balance sheet	Highest	Low
Big ticket clients	High	High
Your bio-data	High	High
Your team's bio-data	Low	High
Confirmed order in hand	High	Low
Great new idea	Low	High
Prototype of a great new idea	Low	High
First client for a great new idea	Low	High
Credit rating	High	Low
The way you dress	High	High
Recommendation	High	High
You on the Web + your Website	High	High
Your CA/advisor/investment banker	High	High
Big name on your board	Low	High
Business is scalable	Low	High

19. Big name on your board

Having a famous name on your board is a huge plus, particularly if you are up for equity investments. And if the famous name can make that recommendation for you, nothing like it. The impact on a case for loans is much lesser, but is significant enough not to be ignored.

20. Is your business scalable?

A banker may not be very concerned whether or how scalable your business will be in the future. An investor on the other hand is acutely concerned whether and by how much the business is scalable, since future valuations are at stake. Most investors will reject projects that are not scalable.

Article was earlier published in reputed entrepreneurship magazine.