5 Tips To Help Secure Financing
POSTED BY JD ESAJIAN // OCTOBER 31, 2016
One of the biggest hurdles for investors old and new alike is securing financing. You can have everything else with your business in place but without financing you won’t get very far. How and where you find financing has changed dramatically over the past ten years. It wasn’t that long ago when lender financing was the only realistic source of funding. Today between hard money lenders, private money lenders and silent capital partners there are more financing options than ever before. While finding financing is easier it doesn’t mean it will simply fall on your lap. You still need to dazzle your capital source and make a solid presentation regardless of who you are talking to. Here are five tips to help establish and secure the financial backing you are looking for.
Know Your Target. It is important that you treat every financing meeting with the respect and importance it deserves. You truly never know who will be the person that catapults your business to the next level. Regardless if you are meeting with your great uncle or a top local hard money lender you need to prepare the same. You should have a little background on what they want out of the deal and what their risk tolerance is. Without a personal understanding of who you are speaking with your presentation will sound repetitive and rehearsed. Don’t forget that you are the one looking for capital. Even if you have closed a few deals you still need to put your best foot forward. This starts with doing a little homework on your target either online or by asking questions to the people around them. The more you know about your target the more comfortable they will feel working with you.
Prepare Numbers & Answers. No lender is going to blindly open up their wallet and give you a blank check. You may eventually get to that point but only after you have built up confidence through several deals. As you plan your financing meetings you need to be ready for every possible scenario. It is human nature for a lender to want to know their bottom line potential. This should be the starting point for your presentation. In addition to the bottom line you need to know everything about the numbers, exit strategy options, carrying costs and potential setbacks. You should leave no stone unturned and be ready for whatever question comes your way. One strategy to help with this is to think about what you would want to know if the shoe was on the other foot. The more you know about every potential outcome the more confident someone will feel working with you. Nobody likes to think about the negative but by taking a proactive approach and discussing the worst case scenario you address the elephant in the room.
Focus On Benefit. Why would someone want to give you access to capital? As is the case with any potential business partnership there needs to be a net benefit for both sides. For you the benefit is the access to funding and the chance to grow your business. For the lender they want to know that their money is safe and they will see a positive return on their investment. During your meeting or presentation you should constantly revert back to the benefit. Every investor walks the line between risk and return. One of the things that make real estate so appealing is the potential of double digit returns. A private money lender may have money parked in a savings account currently generating somewhere in the neighborhood of 1% interest. They understand there is no risk but the returns aren’t exactly eye popping. For them the benefit is the chance to put their money at work for a strong potential return while letting you handle the real estate portion of the transaction. Whatever the benefit is you need to find it and keep coming back to it.
Follow Up Promptly. Even the best meeting may not produce an immediate partnership. You may have set the groundwork of a partnership moving forward but you still need to seal the deal. With every meeting regardless of how you think it went you should follow up within 24 hours. By following up you show that you want to do everything possible to make things work. This also gives you the chance to find the answer to any lingering questions or hammer home the benefit you discussed. You shouldn’t wait for them to contact you. Take a proactive approach and follow up with a phone call or leave a voicemail with an exact day to speak again.
Show Personality. One of the things that lenders really want to know is who they are working with. Numbers and returns are important but often times are not enough to secure a partnership. They want to feel comfortable and confident that you are just as vested in the partnership as they are. Don’t be afraid to show your personality. There are times when you should take your foot off the pedal and lighten things up. It is ok to talk about things going on in the community, your favorite sports teams or what is happening with your kids. Connecting with your lender about personal issues can be the final item that pushes the agreement over the top.
Even if you currently use traditional lender financing or have a hard money outlet you can never have enough sources of capital. Use these five tips in your next financing meeting.