PreparingAFinancingProposal

InnovationPEI
94EustonStreet,POBox910,Charlottetown,PrinceEdwardIsland,CanadaC1A7L9

Telephone:9023686300
Facsimile:9023686301
Tollfree:18005633734
www.innovationpei.com
innovation@gov.pe.ca

1. Whatistheclientlookingfor?

BeforeaclientcanapproachanyBankertheymusthaveaclearideaofthefinancingthattheyarelookingfor.

Whatwillthefinancingbeusedfor?Purchasefixedassets,workingcapital,refinancing,changeof
ownership(sharesorassets)?
Mostimportantly,howwilltheprojectbenefitthebusiness?Canthisbenefitbequantified?i.e.%market
share,$salesgrowth,$profit?
Howmuchdoestheclientneed,arecostsfirm,andwhendoestheclientneedthemoney?
Hasacontingencyreserveforprojectcostoverrunsbeenestablished?
Whattype(s)ofloansarerequired(demand,term,mortgage),forhowlongandonwhatterms?
Howmuchistheclientwillingtopersonallyinvestintheproject?
Whataretheothersourcesoffinancingfortheproject,ifany,workingcapital,otherlenders,government
grants,theseller(balanceofthesale),anddeferredorpostponedloans?

2. Whatisthebankerlookingfor?

IfyouknowwhataBankerislookingforitismucheasiertopresentasolidandpersuasivecaseinsupportofyour
loanapplication.HowdoBankersmakeadecision?Generallycommercialbankerswillusethefollowingfour
criteriatoassesstheproposal:

Management:
Thecaliberandrelevantbusinessexperienceofmanagementisofparamountimportancewhenassessingthe
creditworthinessofanybusiness.

Whatismanagementsbackgroundandexperienceintheindustryorotherindustries?
Whatisthecaliberofthemanagementteamdoesthemanagementteamhavethecollectiveknowledge,
skillsandexperiencetobesuccessful?
Canmanagementsuccessfullyplanthefutureandidentifytheresourcesrequired?
Istherecontinuityofmanagement?Isthereawrittensuccessionplan?
Arethereindependentopinionsofmanagementsabilities,characterandadaptabilityavailable?
Whatcomprehensivemanagementinformationsystemsareusedinthebusiness?
HasmanagementhadpreviousborrowingexperiencewiththeBank?Hasitbeenpositive?

Earnings(repaymentcapacity):
ItisfundamentalthatBankerslendonlytobusinesseswhichcanrealisticallybeexpectedtogeneratesufficient
cashtomeettheforeseeableneeds,i.e.repaymentofdebts(principalandinterest)astheyfalldue,replacement
offixedassets,andtomaintainworkingcapitalataviablelevel.

Istheprojectviable?
Whatisthepaybackperiodofthenewproject,i.e.savings,productivityenhancement,etc.?
Whatisthehistoricperformanceofthebusinessandhowdoesitcomparetoindustrystandards?
Aretheforecastsreasonableandachievablebasedonhistoricresultsandcurrentindustryandeconomic
trends?Impactofsensitivityanalysis?
Doesthebusinesshavethecapacitytorepaycurrentdebtandtheproposednewdebtfromearnings?
Whatistheconsistencyandsustainabilityofcashflow,debtserviceandworkingcapitalrequirements?
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Investment:
Theborrowersinvestmentmustbesufficienttoensureanongoingcommitmenttothebusiness,andtoensure
thattheborrowerwouldsupportthebusinesstotheutmostinspiteofsevereadversedevelopments.

Whatinvestmentaretheowner/shareholdersmakingintheproject?
Whatisthesourceoftheinvestmentandwhenisitavailable?
Whatisthecurrentfinancialstrengthoftheowner/shareholdersanddotheyhaveaccesstoadditional
resources?
Istheresufficientequityinthebusinessandhowdoesitcomparewithindustrynorms?
Whataretheothersourcesofinvestmentavailable?Grants,subsidies,thirdpartyinvestments?

Security:

Thepotentialongoingsuccessofanoperationcanbeaccessedthroughtheprecedingcriteria.Securityforaloan
representsafallbackpositionforalender,providingalevelofcomfortfortheriskundertaken.

Whatsecurityisavailabletosupporttheloan?Accountsreceivable,inventory,equipment,machinery,
furniture,land,buildings,guarantees,etc.?
Whatistheageandcondition,ofthesecurity?Arethereotherfactorswhichmayaffectthevalueofthe
security,i.e.technologyadvances,zoningchanges,environmentalimplications,etc.?
Arethereprofessionalappraisalstobackupthevalue?
Isthesecurityeasytosellintheeventofdefault?
Isthesecurityvalueonaliquidationbasissufficienttoadequatelysecuretheloan?
Dootherlendershaveclaimsagainsttheassets?
Whatpersonaland/orcorporateguaranteesareavailable?
Whatarethemeansoftheguarantorstocovertheirguarantees?

OtherissueswhichmayimpacttheBankersdecision:

Environment:
Howdoesthebusinessoritsbusinesspracticesimpacttheenvironment?
Doestherealtybeingpurchasedhaveanyenvironmentalrisks?

LendingPolicy:

Aretherelendingrestrictionsonprovidingloanstospecifichigherriskindustries,typesofbusinesses,
industrysectors,typesoffinancing,etc.?

3. Whatinformationisrequired?

Ideally,theBankerwouldliketoreceiveacompleteandconcisebusinessplan.Thiswouldinclude,butnotlimited
to,anexecutivesummary,descriptionofthecompanyandoperations,management,marketingplan,production
plan,humanresourcesplan,andcomprehensivefinancialinformation.Theproposal,dependingupontypeof
financingrequestedmayincludethefollowingfinancialinformation:

FinancialInformationChecklist:

StatementofPersonalNetWorthforallmajorshareholders
Financialstatementsforthepasttwotothreeyears
Interimfinancialstatements(includesameperiodforpreviousfiscalifavailableforcomparison)
MonthlycashflowCashflowforecastforatleasttwoyears.Ifpossibleasensitivityanalysis(bestcase,
realisticandworstcase).Requiredforoperationswithcyclicalfluctuations,forstartups,workingcapital
projects,andmajorprojects.Projectionswouldnormallybeonetothreeyearsdependinguponthelength
oftimerequiredtoachievefulloperation.
Agedlistingofaccountsreceivablesandpayablesforlastyearendandmostrecentinterim.
Forecastofincomeandexpensefortwoyears,includingassumptions
Financialstatementsforallrelatedcompaniesforwhichtheborrowerhasadvancedfundsifsignificant.
Consolidatedfinancialstatementswhereapplicable

Dependingupontheproject,otherinformationmayberequired,butnotlimitedtothefollowing:

Purchasesaleagreements
Leases
Firmcostestimatesforequipment,buildingconstruction,etc.
Drawingsandspecifications
Buildingpermits,licenses,etc.
Contractswithbuyers
Surveyplan
Appraisalsrealtyandequipment
Detailedlistofassetsland,buildingandequipment,etc.
Breakdownofsalesbymajorproductcategory
Inventorysummarylisting
ManagementResumes

4.Whatisinvolvedinpreparinganeffectiveproposal?

Presentoneproject.Bankerspreferoneclearandcompleteprojecttomanyexcellentbutvague
possibilities.
Focusonthekeyareasthatthebankerwillneedtoknowversusliketoknowinordertomakea
decision.
Writesimplyandpresentyourcaseputyourselfinthereadersshoes.Avoidlongsentences,
complicatedwordsandtechnicaljargon,asthiswillnotimpressyourbanker.
Backupyourproposalwithfacts(researchinformationisinvaluable)andincludesuchreportsas
appendices.
Timeisoftheessenceashortandconciseproposalwillbetoyourbenefittoelicitaquickresponse.
YourproposalshouldlookprofessionaltoprovidetheBankerwithapositivefirstimpressionofyour
company.
Demonstratehowyouwillrepaytheloan.Yourforecastsshouldprovehowtheprojectwouldbe
profitableforbothyouandtheBank.
Demonstratehowyouwillsucceed.Showhowyouhaveconsideredalloftheanglesandthatyoudohave
acontingencyplan.Alsoindicatehowyourprevioussuccessesorexperiencewillhelpwiththecurrent
project.
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5.Howdoyoudealwithbankers?

WorkwithyourBankeryouarebothonthesameside.
Bankers are, almost by nature, cautious and conservative therefore full disclosure is required to
maintainBankersconfidenceandtrust.
Arrange your borrowing needs well in advance, this reflects favorably on managements ability to
effectivelyplanforfuturegrowth,whichbolstersyourcaseforaloan.
HelpyourBankerreachaquickdecisionbyprovidingasolidrationalefortheloananddemonstratehow
thebusinesscanrepayit.
Understand what you Banker will be looking for and have pertinent supporting documents and other
informationreadilyavailable.
Prepareaconvincingandcompleteproposalsellyourselfandthepotentialofyourbusinesstosucceed.
EstablishagoodrapportwithyourBanker;keepinghim/heruptodateonyourbusiness,providingtimely
annualfinancialstatements,etc.asthiswillassisttoexpeditefuturerequestsforfinancing.
Improveyourunderstandingofthefinancialinstitutionyouaredealingwith,thetypesofloanproducts
andservicesofferedbyreviewingtheirwebsite.

TheBankersroleistofinanceyourproject,nottoplanitforyou.Ifyouhavenottakenthetimetoplan
properly,yourBankerisunlikelytolendyouthemoney

6.Formoreinformation

InnovationPEIspecializesinprovidingoneononebusinessadvisoryservices.Ourqualifiedstaffcanalsoprovide
informationregardingmostbusinessdevelopmentprogramsofferedbygovernmentagenciesacrossPrince
EdwardIsland.ApplicationformsandadditionalprograminformationcanbeobtainedfromInnovationPEI.

InnovationPEI
Telephone:9023686300;18005633734

94EustonStreet
Facsimile:9023686301
POBox910
innovation@gov.pe.ca
www.innovationpei.com
Charlottetown,PEC1A7L9