Business Funding: What Will I Need When I Apply?

When you apply for business funding, lenders will usually want a clear picture of the business, your plans for the future, historic and forecast financial performance, the strength of the management team and the amount of personal capital being introduced. A well-prepared funding pack can make it easier for a lender to assess the opportunity, understand the risks and decide whether the proposed finance is suitable.

Applying for business funding involves considerably more than simply approaching a lender and asking how much they are prepared to provide.

Once you have identified a suitable funder and received indicative terms, you will normally need to provide a detailed information pack that allows the lender to assess the business, the proposed transaction and your ability to repay the finance.

If you are looking to apply for business funding to support the purchase of a business, the lender will typically want to understand both the historic performance of the target business and what is expected to happen after completion.

The quality of the information you provide can therefore have a significant influence on how efficiently the funding application progresses.

What information will I need when I apply for business funding?

The precise information required will vary depending on the lender, the amount being borrowed and the nature of the business.

However, a typical funding application may require information covering:

• The history and current position of the business
• Your plans for future growth
• Sales and marketing strategy
• Cash-flow forecasts and profit projections
• Your personal experience and the experience of key team members
• A SWOT analysis
• Historic financial accounts
• Details of existing debt and financial commitments
• Evidence of the personal capital you intend to invest
• Information about the proposed transaction and how the funding will be used

Collectively, this information forms your business funding pack.

It should enable the lender to understand what they are being asked to finance, why the opportunity is commercially credible and how their money is expected to be repaid.

Why do lenders need so much information?

A lender is not assessing the opportunity in the same way as the buyer.

As the buyer, you may be focused on the company's growth prospects, market position and potential value.

The lender is also interested in those areas, but ultimately needs confidence that the proposed loan can be serviced and repaid.

This means the funder needs to understand:

• How the business has performed historically
• How stable its cash generation is
• What could cause performance to deteriorate
• How realistic the forecasts are
• Whether the management team is capable
• How much capital the buyer is personally committing
• What security or other protections may be available
• What would happen if the business underperformed

A strong funding application should therefore address both the potential of the business and the risks associated with lending to it.

1. The story of the business to date

One of the first pieces of information a lender will want is a clear overview of the business.

For a company being acquired, this will often be contained within an Information Memorandum (IM).

The Information Memorandum should give the funder a concise but detailed understanding of the company as it operates today.

It may include information such as:

• The history of the business
• Products and services
• Customers and markets
• Revenue streams
• Employees and management
• Operations
• Premises
• Key suppliers
• Historic financial performance
• Competitive position
• Reasons for the proposed transaction

The objective is to give the lender enough context to understand what the business does, how it makes money and how it has developed.

The lender should not have to piece together the basic story from several unrelated documents.

2. Your plans for the future

When you apply for funding, the lender will normally want to know what happens next.

This is particularly important where the finance is being used to acquire a business.

The historic company may have performed well, but the funder is lending against its ability to generate sufficient cash after completion.

Your future plans should therefore explain how you intend to develop the business.

This could include:

• Entering new sectors
• Launching new products or services
• Increasing sales and marketing activity
• Expanding geographically
• Entering international markets
• Investing in research and development
• Recruiting additional employees
• Improving operational efficiency
• Increasing production capacity
• Making further acquisitions

The plan should be ambitious enough to demonstrate opportunity, but realistic enough to remain credible.

Funders will usually be cautious of forecasts that assume substantial growth without explaining how that growth will actually be achieved.

3. Sales and marketing plans

Sales and marketing can be an important part of a business funding application, particularly where future growth forms part of the rationale for the transaction.

The lender may want to understand:

• How the business currently generates leads
• How new customers are won
• Which products or services generate the greatest revenue
• Which sectors or customer groups are being targeted
• The size and quality of the sales pipeline
• Historic marketing expenditure
• Future marketing investment
• Sales team structure
• Revenue assumptions by product, division or sector
• Expected customer retention

It is not enough simply to forecast that sales will increase.

Your funding pack should ideally explain what activities will generate that increase and what additional costs will be required to deliver it.

4. Cash-flow forecasts

Cash-flow forecasting is one of the most important elements of any application for business funding.

A profitable company can still experience financial difficulty if it does not have enough cash available when payments fall due.

A lender will therefore want to see how cash moves through the business on a month-by-month basis.

The forecast may include:

• Revenue
• Gross profit
• Payroll
• Operating costs
• Tax payments
• Capital expenditure
• Debt repayments
• Interest payments
• Working capital movements
• Deferred consideration
• Seasonal variations
• Other significant cash commitments

The cash-flow forecast should also identify potential pressure points.

For example, the company may require additional working capital during periods of rapid growth or where customers take longer to pay than suppliers.

Recognising these requirements in advance can demonstrate that the funding proposal has been properly considered.

5. Profit and loss projections

Alongside cash flow, the lender will usually want to see projected profitability.

These forecasts should show how you expect the business to perform after funding has been introduced.

They may include:

• Revenue
• Gross margin
• EBITDA
• Operating profit
• Interest costs
• Tax
• Net profit

The assumptions behind the projections are as important as the figures themselves.

If revenue is forecast to increase by 25%, for example, the lender may ask:

• What is driving the increase?
• Is there an existing sales pipeline?
• Are new employees required?
• Does the company have sufficient capacity?
• Will margins remain stable?
• What happens if growth is slower than expected?

Your forecasts should therefore be supported by clear and understandable assumptions.

6. Your personal CV

If you are applying for funding to acquire a business, the lender is not only assessing the company.

They are assessing you.

Your CV should demonstrate why you are capable of owning and managing the business after completion.

It should normally cover:

• Previous employers
• Dates of employment
• Seniority and responsibilities
• Relevant sector experience
• Management experience
• Commercial achievements
• Professional qualifications
• Leadership experience
• Experience managing budgets or profit and loss responsibility

The aim is not to provide an exhaustive employment history.

It is to demonstrate that your skills and experience are relevant to the business you intend to acquire.

For most applications, a concise CV of approximately two to three pages should be sufficient.

7. CVs of key management team members

Where other senior managers will play an important role following the transaction, their experience may also be relevant.

The lender may want to understand:

• Who will run the business day to day
• Who is responsible for finance
• Who manages sales
• Who manages operations
• Whether there are gaps in the management team
• How dependent the company will remain on the seller

A strong management team can provide additional confidence that the company will continue to perform after the ownership transition.

8. SWOT analysis

A SWOT analysis can help demonstrate that you understand both the strengths of the business and the risks it faces.

The analysis should consider:

Strengths

These might include:

• Strong customer relationships
• Recurring revenue
• Experienced employees
• High margins
• Specialist intellectual property
• Strong market reputation
• Limited competition

Weaknesses

Possible weaknesses could include:

• Customer concentration
• Owner dependency
• Limited marketing activity
• Ageing equipment
• Weak systems
• Skills shortages

Opportunities

These may include:

• Entering new markets
• New product development
• Increased marketing investment
• Cross-selling
• Geographic expansion
• Operational improvements

Threats

Potential threats might include:

• New competitors
• Regulatory changes
• Customer loss
• Supplier dependency
• Economic conditions
• Technology changes

The purpose of a SWOT analysis is not to present the business as perfect.

A lender is likely to be more reassured by a buyer who understands the company's weaknesses and has a plan to address them than by an application that ignores obvious risks.

9. Historic financial information

When you apply for business funding, funders will usually request historic financial information.

For the purchase of an established UK business, this may include the previous three or four years of statutory accounts.

These accounts can help the lender identify trends in:

• Revenue
• Gross margin
• Profitability
• EBITDA
• Cash generation
• Assets and liabilities
• Debt levels
• Working capital

In many cases, the funder will be comfortable receiving the statutory accounts in their existing format.

However, additional management accounts may also be requested where the latest filed accounts are several months old.

The more recent the financial information, the easier it is for the lender to understand how the company is currently performing.

10. Management accounts

A lender may also ask for current management accounts.

These can provide more up-to-date information than annual statutory accounts and may include:

• Monthly profit and loss statements
• Balance sheets
• Cash-flow information
• Aged debtor reports
• Aged creditor reports
• Sales information

If the latest statutory accounts cover a financial year that ended several months previously, management accounts can help bridge the gap between those accounts and the current trading position.

11. Evidence of your personal funds

If you are buying a business, lenders will usually expect you to contribute some of your own capital.

The amount required will depend on the transaction and the lender.

You should therefore be prepared to provide evidence of the funds you intend to invest.

This could include:

• Bank statements
• Savings accounts
• Investment statements
• Evidence of proceeds from an asset sale
• Other evidence of liquid capital

Funders will generally prefer the capital to be readily available.

If your proposed contribution depends on selling property or converting other illiquid assets into cash, this can introduce uncertainty and potentially delay completion.

The important point is that the lender needs confidence that your contribution will be available when required.

How much personal capital do I need when applying for business funding?

There is no universal minimum that applies to every transaction.

The amount will depend on factors such as:

• The purchase price
• The amount of debt requested
• The financial performance of the business
• The lender's credit policy
• Available security
• The transaction structure
• Deferred consideration
• Your experience
• The overall risk profile of the acquisition

A lender will typically want the buyer to have a meaningful financial commitment to the transaction.

This demonstrates that the buyer is sharing some of the financial risk rather than relying entirely on third-party capital.

What else might a business funder ask for?

Depending on the proposed facility, you may also be asked to provide additional information.

This might include:

• Details of the purchase price
• Heads of Terms
• Sale and Purchase Agreement
• Due diligence reports
• Customer concentration analysis
• Details of key contracts
• Asset valuations
• Property information
• Details of existing borrowing
• Personal assets and liabilities
• Personal guarantees
• Security information
• Tax information
• Working capital analysis
• Monthly management information
• Details of deferred consideration
• Information about the seller's involvement after completion

The exact requirements will depend on the type of finance being sought.

What makes a strong business funding application?

A strong application is generally one that allows the lender to understand the opportunity without repeatedly asking for basic information.

Your funding pack should ideally be:

• Complete
• Accurate
• Consistent
• Clearly presented
• Supported by evidence
• Realistic
• Easy to navigate

Consistency is particularly important.

If the Information Memorandum says one thing, the financial model says another and the buyer provides a different explanation during a meeting, the lender may become concerned about the reliability of the information.

Before submitting the application, check that the figures, assumptions and narrative all tell the same story.

Common mistakes when applying for business funding

Several issues can make a funding application more difficult than necessary.

Unrealistic forecasts

Aggressive growth assumptions without supporting evidence can weaken the credibility of the application.

Incomplete financial information

Missing accounts, outdated management information or unexplained figures may result in additional questions.

Ignoring risks

Every business has risks.

Failing to acknowledge them can suggest that the buyer has not fully assessed the acquisition.

Insufficient working capital

It is important to consider not only the amount required to buy the company but also the cash needed to operate it afterwards.

Weak management information

Funders want confidence that the new owner will be able to monitor performance after completion.

Unclear use of funds

The lender should understand precisely how the requested finance will be used.

How do I apply for business funding?

The precise process will vary between funders, but a typical application may involve:

1. Identifying suitable lenders
2. Holding initial discussions
3. Providing headline information about the business and transaction
4. Receiving indicative terms
5. Preparing a detailed funding pack
6. Submitting financial information and forecasts
7. Answering lender questions
8. Credit committee assessment
9. Agreeing final terms
10. Completing due diligence and legal documentation
11. Satisfying any funding conditions
12. Drawing down the facility at completion

Starting early can be valuable, particularly where the funding is connected to a business acquisition.

Funding discussions, due diligence and legal work often need to progress alongside one another.

How long does it take to apply for business funding?

There is no fixed timetable.

The process will depend on:

• The size of the funding request
• The type of lender
• The complexity of the transaction
• The quality of the information supplied
• The speed of due diligence
• Credit committee requirements
• Legal documentation
• Any conditions attached to the funding

A complete and well-organised application can help reduce avoidable delays.

However, buyers should still allow sufficient time for the lender to assess the proposal properly.

What is the difference between business funding and small business funding?

The terms are often used broadly.

Business funding can refer to a wide range of finance available to companies of different sizes.

Small business funding generally refers to funding designed for SMEs and smaller owner-managed businesses.

Depending on the circumstances, this might include:

• Bank loans
• Acquisition finance
• Asset-based finance
• Invoice finance
• Working capital facilities
• Private debt
• Equity investment

The appropriate funding route will depend on what the capital is required for and the financial profile of the business.

Can I apply for funding for a small business acquisition?

Yes.

A buyer looking to acquire an SME may be able to apply for funding for a small business purchase, although the availability and structure of finance will depend on the individual transaction.

Funders are likely to assess:

• The target company's historic performance
• Its ability to generate cash
• The purchase price
• The amount of personal capital being introduced
• The buyer's experience
• The proposed debt level
• Future forecasts
• Available security
• The strength of the management team

A business that generates consistent cash flow and has a strong management structure may generally present a stronger funding proposition than one with volatile performance or significant owner dependency.

What should I prepare before approaching a business funder?

Before making a formal application, try to have the core information ready.

At a minimum, this should normally include:

• A clear description of the business
• Historic accounts
• Current management information
• Financial forecasts
• Details of the proposed transaction
• Your CV
• Details of your personal investment
• An explanation of how the loan will be repaid

The better prepared you are before the first detailed lender conversation, the more efficiently the funding process is likely to progress.

What will I need when I apply for business funding?

Ultimately, a lender is trying to understand three things:

Is this a good business?

Is this a credible borrower and management team?

Is there a realistic and robust route to repayment?

Your funding pack should provide the evidence required to answer those questions.

For a business acquisition, that means combining a clear explanation of the target company, credible financial information, realistic forecasts, evidence of your own capital and a strong explanation of why you are the right person or team to take the business forward.

The objective is not simply to produce a large volume of documents.

It is to give the funder a clear, consistent and commercially credible case for providing the finance.

How Valius can help

Whether you are considering buying, selling or planning the next stage of your business journey, having experienced support around you can make the process clearer and more manageable.

Valius works with business owners and management teams to understand their objectives, assess their options and navigate important strategic and financial decisions. If you would like to discuss your plans and explore the support available, contact the Valius team for an initial conversation.