Repayment is tied directly to your success. In order
to repay your Funding Source, you must clearly
define how you are going to make money and how much
money you are going to make.
R&D Requirements
How much research and development remains before you
can enter the market? Does your product require
regulatory approval? What is your time table? What
delays are foreseeable that could affect your time
table? Are there any alternative plans if tests,
approvals, patents, licenses, etc., don't go as
planned?
Break Even Analysis
Exactly where is it? Must you sell 10,000 widgets?
How will price breaks effect you? Can your
salespeople survive on your commission structure?
What about material price increases? Here is where
you are going to demonstrate that you understand
your product, its market, its costs and your
industry.
Current or Projected Debt Coverage
Ratio Remember 1.25 to 1. It's a figure that
can affect your future. For lenders if your net
income is below 1.25 to 1, it may mean no loan, a
higher rate or more collateral. Simply put, it
determines your ability to service debt. Your net
income should be 1.25 times higher than the debt
payment you are proposing to take on. Hopefully you
have analyzed your debt coverage ratio and found it
to be much higher. If it's not, this leaves a
pretty slim margin for error.
With investors, because there is no debt, they are
concerned with profit margins and retained earnings.
The projections should support ratios of better than
2.0 to 1 to generate any serious investor interest.
Amortization or Dividend
Return on investment Return of investment
These are terms that all funding sources want to
know. If they give you the money, what do you
project your time table to be for them to get their
investment back? Then, when does the return on the
investment start?
Pre-Planning
Always try to arrange for funding when you don't
need it. Entrepreneurs are famous for seeking
capital in a crisis. When your need is great
(payroll, taxes, sales drop, etc.) rates always seem
to go up or you can't find capital at all. Do
your best to forecast your capital requirements at
least six months in advance.
