WHY DOES MY BANKER KEEP ASKING ME ABOUT “USE OF FUNDS?”

On every business loan application and every investor slide show, there is a spot for “Sources and Uses.” Under “sources”, you’ll put from where investment/debt is coming, and under “uses” you’ll show how you’re going to use that money. If you can’t answer this question with a real answer, you won’t be taken seriously and you’ll be fighting to just keep the attention of your audience.

Here are some unacceptable answers when someone asks “How will you use this money?”

·       “To start my business”

·       “For marketing”

·       “Well, I could use it for a…or a….”

·       “I’m going to print t-shirts with my business’ logo on them”

These are all the beginnings to fine sentences, but if you can’t finish that sentence, you have no business asking for money.

Here’s the worst part of these answers—you do know how you want to use that money. You know that to start your business it takes money. You know that you need money for marketing. You just haven’t spent enough time thinking through exactly where each penny will go. That’s what your investor or lender wants to know. Remember, they are trying to get their money back PLUS some (a lot). If they have to get it back, they need to know where they’re sending it. We’ve all had friends, kids, nieces and nephews, or siblings ask us for money. Aren’t you more apt to help them out if they tell you “Yeah, I’m going to the movies tomorrow night and I want to buy the big thing of popcorn and half a tank of gas” rather than “I don’t know. Stuff.”

Be clear. Be specific. Here are some better answers when someone asks how you’ll spend the money you’re asking for.

·  “I’m going to spend $500 on my legal filings with the state, so I can form my LLC. Another $5,000 will go toward inventory. That inventory will be marked up 75% and I anticipate selling all that inventory in the first 90 days of opening my store. The final $4,500 will go for overhead expenses like rent and utilities at the store while I improve my cash flow.”

·  “I am going to use this investment to create a customized e-commerce website that will open up a new customer base for me. I project that within the first 12 months of the website being up, it will have increased my revenues by 25% and my bottom line by an additional $10,000.”

·  “This loan will help me purchase the truck I need to start my moving business. It will pay for the truck as well as the registration and fees for one year.”

Each of these answers not only tell where the money is going, but why you are spending money on that. In addition, each of these purposes improves cash flow, expands the business, and is clearly thought out in how it improves the business overall.

Work on your answer by using this script:

“I will spend this money on                                        which will allow my business to                                                                                                 . Therefore, my business will be improved in the following way(s):                                                                                                                                                                                                                                                                                                                                                    .”

Tidrow Capital Group, LLC is a privately held business advisory firm that specializes in helping businesses strategize their funding needs and gain access to the capital they can use to grow with confidence.