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Since money sources are financial types, all I need is a good set of numbers, right? Lenders and investors look past the surface numbers to the intangibles of the five C’s of;

1. Character
Is about honesty, integrity and persistence. Your credit record, work record and personal lifestyle, as reflected in your personal financial statement, are scrutinized. Never conceal debt or overvalue your assets. Order your personal and business credit reports before seeking financing. Clear up errors and put your explanation on record for any disputed items. Include in the financing proposal your explanation of any accurate negative credit information. Otherwise, when it’s uncovered, you are presumed to be a liar. Past behavior is a predictor of future behavior. Have you encountered personal and business problems in the past? Did you keep your word? Meet your obligations? Applicants who fail the character test do not get funded.

2. Capacity
Is about what you can do. What skills, education, experience, drive and contacts are needed to enable repayment of a loan or achieve company growth such that investors can capture a 35 percent-plus return? Does your track record, education and training show that you and your management team have these skills? Investors specialize in selected industries because they know what to look for in management.

3. Conditions
Are external factors impacting your business in ways that you cannot control but to which you must respond. They can be threats or opportunities such as technology, competition, regulation, and economic or social changes. Your response to judgmental conditions should be strategic planning. You must include an analysis of competitors and how you create and maintain a competitive advantage.

4. Collateral
Loan collateral includes identifiable business and personal assets, such as your land and building, vehicles, and machinery. Investor collateral is having control of your company. If you can’t pay, the banker can take your assets and sell them. If you don’t hit your projections, the investor can take over your company. Venture investors tend to select one of two ownership control concepts. They either take a minority interest in the company that can increase if profitability targets aren’t met, or they start with a controlling interest that declines as financial targets are met.

5. Capital
Equity capital measures how much the owners have risked in the company. Equity is a cushion to absorb losses. Debt capital must be repaid in good and bad times. The more debt a company has relative to equity, the riskier the loan. New companies are expected to have more capital. It is nearly impossible to get bank financing if, after the loan, there is $4 of total debt for every $1 of owners’ equity. Not all dollars are equal to investors. You’ve spent dollars and sweat equity in product development, but if you can’t get to market without investor money, your dollars are without value. Investors argue their dollars should buy a larger share of your company than your dollars. Most investments fail over this issue.



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