What is a Funding Request?
The funding request section of a business plan is an outline of the future funding requirements of a company. Usually, the time scale is limited to the next five years, especially in cases of startups with an uncertain future. Information needs to be provided about the company’s future financial plans such as the amount of funding required at different phases or the different sources of capital.
- The funding request section of a business plan is an outline of the future funding requirements of a company.
- The name and nature of the company, location, owners, service or product offered, target audiences, etc. must be included in the section.
- It must specify if the company is looking for a short-term loan or an investment in exchange for stake and/or board membership.
Writing a Funding Request
1. Business Summary
A business summary is only required in cases when a funding request is being created as a standalone document. The name and nature of the company, location, owners, product or service offered, target audiences, etc. must be included. In cases of established companies, past achievements can be highlighted.
2. Amount Required
The amount required section includes a ballpark figure of the total funding required at the moment and whether the company plans to raise capital again sometime in the near future. It must specify if the company is looking for a short-term loan or an investment in exchange for stake and/or board membership.
Future requirements must be calculated after accounting for existing resources and income channels, if any. Usually, companies estimate their requirements five years down the line to arrive at a figure. The amount is usually negotiable; companies may leverage shareholding, fixed assets, or interest rates for the same.
3. Future Plans
The future plans section includes the specifications of where the funding, if any, will be spent. Funds can be needed for working capital, geographical expansion, recruitment drives, building machinery or building, advertising, and so on. Several hidden aspects are involved, and it is important to include any eventualities that may affect the cost of the aforementioned things. They may relate to the anticipated appreciation of property rates, tightening of government regulations, the imposition of tariffs, etc.
4. Financial Information
The financial information section is only required in cases when a funding request is being created as a standalone document. In case a business plan is being prepared, all information will be covered under the financial information section of the plan.
The financial information includes historical data such as income statements, debt repayment history, etc. Forecasts about future needs are also included here. Any activities that may negatively or positively impact the company’s ability to repay loans or deliver results promised, such as relocation, expansion, mergers and acquisitions, etc., need to be included here.
The terms section covers how the company expects to pay back a loan or produce deliverables for the investors. It is important to provide lenders with a potential exit plan from the company, which may include cash outs or Initial Public Offering (IPO) plans. The process is extremely important from the investor’s perspective as it provides them with a chance to minimize risk and maximize their profit.
Key Factors to Remember
There are a number of important factors to consider when preparing a funding request, including:
1. Target audience’s perspective
It is important to consider the target audience’s perspective while writing a funding request. Applying for a loan is very different from approaching an investor or a potential partner as both involve different contract terms, amounts of money, or types of funding.
A bank may look at past credit history, existing sources of secured funding, and income statements. On the contrary, an angel investor may focus more on the business concept and associated risk, while a venture capitalist may want well-modeled projected cash flows.
The financial section of the plan may come in handy while preparing a funding request. It is important to be conservative in one’s estimates of future growth potential or market size, especially while approaching investors. False claims about the potential of a product and unnatural estimates of consumer engagement are likely to drive away investors.
It is important to be consistent about the financial requirements at the different stages of the venture. One must request enough funding to cover all costs fully to avoid a situation where one is unable to achieve organizational objectives. At the same time, one must not set the requirement too high as experienced investors usually have a fair idea of the value of the concept.
CFI is the official provider of the global Financial Modeling & Valuation Analyst (FMVA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional resources below will be useful: