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7 questions a cash-flow lender wants answered before investing – by one!

By Stephen Galvin

Cash-flow lending is a key source of finance for businesses that are looking for funding, but have little or no security.

These loans can be used for a range of needs from short-term project finance to working capital to supporting ownership changes such as Management Buy-Outs (MBOs).

To take advantage of this type of funding you’ll need to convince the lender you/your business are worth taking a risk on.

Based on our experience, here are seven questions a cash-flow lender will ask you before deciding whether or not to provide you with funding:

1.  How reliable is your business’ cash-flow?

If a lender is making an investment decision on a company’s ability to generate cash, they’ll want to see reliable cash-flows.  Good cash-flows are predictable and therefore easier to forecast, robust enough to stand up to scrutiny and generated quickly and in a timely manner.

2.  How strong is management team?

Equally as important as cash-flow is the management team. Experienced teams with a proven track record will always impress a potential funder, while a unified and well-rounded team with no obvious gaps will show a lender you’re well equipped to handle any pressures.

3.  What is the opportunity?

In addition to the cash-flow and the management team what are the details of the investment you need?  Ease of delivery and a quick turnaround will always be attractive to a lender while potential follow-on opportunities can help bolster your business proposition.

4.  What is the company’s heritage?

Age matters and is worth emphasising! A business that has been around for a long time is often regarded as lower risk.  If your business operates in established markets and sectors, these are also much easier for lenders to understand and will help to build their trust.

5.  Where is the business positioned in the market?

A strong market position is crucial and demonstrates to investors that external factors are on your side.  If your business is market-leader, this puts you in a strong position, allowing your business to drive the market and create barriers to entry for potential competitors.  All of this can have a direct impact on your business’ ability to grow and flourish.

6.  Is the growth plan realistic?

Is your predicted growth realistic and achievable? Can your management team achieve their goals? Your growth plan needs to provide accurate and convincing answers to these types of questions.

7.  Does the management team show ambition?

When a lender speaks to a management team, they’ll be expecting them to demonstrate a real desire to achieve.  They’ll want to hear about a strong vision, where the management team wants to be in 2-3 years’ time and how they plan to get there. Moving a company forward isn’t always an easy ride, so it’s important for a lender to see you’re up for a challenge!

Cash-flow lending opportunities

Cash-flow lending levels have improved over the last few years, but some lenders still need convincing. At Finance Wales, we work with all the major lenders, but also have the ability through our funds to be highly flexible when structuring finance solutions. We regularly provide cash-flow loans for Welsh businesses supporting a full range of SME investment needs.

If you would like to enquire about a cash-flow loan from Finance Wales visit our funding needs section.