Frequently, business people forget a critical point when they are preparing to enter discussions with a new lender.

The lender is in business to make money. Often the lender is using borrowed funds to make loans. Therefore, the lender has a fiduciary responsibility to ensure there is a high level of confidence that the loans will be repaid and that the return on capital will be high enough to meet the internal rate of return set by the lender on the funds deployed.

The lender will be able to make a decision based on the information provided. The key to your presentation is to understand the lender and their requirements and to provide a package of information that clearly indicates you have an understanding of the lenders business model.

WHAT TO INCLUDE?

Executive Summary:
The Executive Summary will be a clear and concise overview of your business. It might be broken down into a few segments and contain some of the following general information:

o Business Overview: What is the business? What are the products or services? Who are the customers?

How big is the business? Who runs it on a day to day basis? The overview should also include a brief description of why the Company needs new financing and how much it needs.

o Business History: How old is the business? Who are the shareholders? How has the business evolved?

o Financial Overview: Discuss the current financial situation including the current financial statements, cash flow, and changes in cash flow from year to year. In this section you must address: Why there is a need for new financing? What has changed in the business or the business environment? You should be discussing how much money you need and what the money will be used for.

o Management: Every lender wants to know who is managing the business and how is it being managed.

You should discuss the background of the leader as well as the skill sets of the next level of management.

Is there a sales team? If so, are they employees or agents? A critical aspect for lenders, and particularly specialty lenders, is how reliable is the financial reporting system? Often specialty lenders require specific reports on a regular basis and you should demonstrate your ability to provide detailed reporting if required.

o Operations: How many facilities are there? Where are they? Are they owned or leased? How long are the leases? What happens in the different facilities? Where is the main office? How many employees are on the payroll?

o Sales & Marketing: A general discussion of the marketplace: How the Company goes to market? Who are its target customers? What are its plans for the next 12 months? If possible, you should provide some examples of how the company competes in the marketplace and what tools it uses (such as the internet, catalogues, call services, direct salespersons, etc.).

Financial Information:

Depending on the lender, the focus of the information that you provide may be different, however, in every case you should provide the following:

Current financial statements including:

o Balance sheet

o Income statement

o Statement of Cash

o Current year projections including cash flow

o Current accounts receivable and accounts payable aged listings

o Externally prepared financial statements for the last four years.

Additionally, the lenders will require other specific information. Some may require detailed asset lists, other may required detailed inventory lists and still others may require information on a specific transaction. In each case, the information should be accurate and complete the first time it is delivered to the lender.

Even if a lender is going to provide funding for a specific transaction, they will need to complete their own due diligence that will necessitate looking at the common information.

If you are successful in receiving a term sheet from the lender based on your initial presentation be prepared for a significant due diligence. Once you have signed the term sheet, you may have committed to a base fee. It is disappointing to spend that money and not get funded. We always recommend that you use a professional to ensure the documents are presented in a way that will enhance your success in the funding process.

The author of this article is Mr Larry Maker, Soberman, Maker & Associates Inc and a member of BKR M&A in Boston.