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Questions a Cash-Flow Lender Wants Answered Before Investing

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Cash-flow lending can be a key source of finance for businesses that are looking for funding.

These loans can be used for a range of needs but are particularly suitable for backing ownership changes such as management buy-outs (MBOs) where there can be little or no security.

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

Based on our experience, here are five questions a cash-flow lender will ask you before deciding whether or not to invest:

How reliable is your business’ cash-flow?

Understanding the impact on cash-flow of a change in the management team is critical.

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 are easier to forecast, robust enough to stand up to scrutiny and generated quickly and in a timely manner.

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.

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 a 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.

Is the growth plan realistic?

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

Does the business have a strong vision?

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 business wants to be in 2-3 years’ time and how they plan to get there.

For more information contact [email protected]

 

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The Development Bank of Wales exists to help businesses in Wales start up, strengthen and grow, by getting them the capital they need across a range of routes.

As a unique resource in Wales, we offer flexible finance to all businesses at all stages, with funds available from £1,000 to £10million.

Our teams of friendly and dedicated staff all across Wales are on hand to provide guidance on the right investment and support for your business, and can provide the local insight which we know business owners value.

We’re one of the top five institutional venture capital investors in the UK by volume, with more than £100m invested in tech businesses.

We also work alongside partner organisations like Business Wales, and offers co-investment alongside banks, crowd funders, grants, private and corporate investors and other lenders.

And we’re committed to helping Welsh businesses improve their sustainability and achieving net-zero goals, helping them to transition to Wales’ green business future.

For more information, visit the Development Bank website at www.developmentbank.wales to find out more.

 

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