Kavan Choksi – Know the Difference Between Business Investors and Lenders for Your Business
If you are an early-stage business, you should know that pitching an investor is quite different from submitting a loan application to a lender. The first idea that comes to the business owner’s mind is to create a pitch for equity financing from investors or other venture capitalists. In this stage, the company generally seeks funds for growth or for the development of a fresh line of business.
Now, after some point in time, the company gets to know about the advantages of debt financing. A loan is generally cheaper and non-dilutive in nature over preserves control and equity. It is available faster too and comes with flexible repayment terms. After contemplation, the company decides to go in for a working capital loan in conjunction or even in place of the equity finance. However, this is where the business often goes wrong- they use the same pitch to potential investors and invite problems!
According to leading business expert and successful entrepreneur,Kavan Choksi,the problem in the above case is lending institutions will not accept this pitch for approving the loan. The business has to make some adjustments to this pitch as the lender looks at the business differently from the investor.
Lenders want you to present a solid business scenario based on realistic cash flow and other details that display how the loan will offer you benefits and get repaid on time. So, this pitch is very different from what investors need.
What are equity investors looking for?
You have to present a pitch with an inspiring story. The equity investor wishes to buy into your business and look into its growth potential. At the same time, the potential investor needs to assess how hungry you are when it comes to the success of your business. These are the key elements that founders have to discover with the aid of incubators and accelerators.
The priorities for lenders and investors are not the same
When it comes to lenders, their priorities are different. They just need their money back. Yes, for them, the growth is good; however, it must ensure that they will get repaid as this is why it matters to them the most.
From the above, it is obvious that investors and lenders do not have similar priorities when it comes to your business. However, many business owners are surprised when a lender asks them for additional or even different information that was once used to entice a potential investor.
According to Kavan Choksi, forecasts are vital for a loan application and operating your business. These forecasts should present your cash flow and help you anticipate whether you could be short of money to pay your payroll or bills. Projections that are prepared for any equity investor should stretch to five years and should be broken down by the year. For lending and internal business purposes, these cash flow projections should be for a month or stretch to about one to two years.