How to Write a Business Plan: Funding Request
There are several reasons to write a business plan. A common reason is to help small business owners gain a better perspective of their business. However, small business owners often seek out a business plan for the sole purpose of obtaining funds from a bank or investor. If this is your purpose, then you definitely need a business plan funding request in your document. Further, to optimize your chances of obtaining funding, some specific steps and strategies should be followed for writing your funding requests.
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Make your funding request is the last section of your business plan.
Your business plan will include a plethora of information about your business, such as the target market, company information, financials, and products or services sold. Before requesting funding, make sure to educate the potential investor about your company in its totality. Because of this need, the funding section should be the last piece of information the reader reviews. This will help the investor or lender come to an educated decision based on all the information available about our company or proposed company.
Why the funding is needed.
The first portion of your funding request should be focused on explaining why the funds are needed. For some companies, funds are only required for working capital, which is monies used to fund operations. For other firms, funding is necessary to start operations. Regardless of the reason why you need the funds, make sure to explain, in detail, why funds are needed.
The total amount of funding needed.
The second piece of information that should be included in your business funding request is the total amount of funds needed. This should immediately follow why funding is necessary section. For this part, make sure to state the required funds in one lump sum. This prepares an investor or reader for the total dollar amount needed.
Usage of funds.
In this section, make sure to break down where the funds will be spent and when the funds will be needed. For example, if funds are required for working capital, then make sure to say that funds will not be needed until the business opens its doors and then break down in various components how the funds will be spent, if possible.
The total amount of funding needed.
The second piece of information that should be included in your business funding request is the total amount of funds needed. This should immediately follow why funding is necessary section. For this part, make sure to state the required funds in one lump sum. This prepares an investor or reader for the total dollar amount needed.
Usage of funds.
In this section, make sure to break down where the funds will be spent and when the funds will be needed. For example, if funds are required for working capital, then make sure to say that funds will not be needed until the business opens its doors and then break down in various components how the funds will be spent, if possible.
Parameters of funding.
After the breakdown of how funds will be used, discuss parameters for accepting funding. These parameters may include an equity stake in the company or specific loan guidelines. An example of this would be: “Our firm will offer a 25% equity stake for interested investors”. Once this is stated, make sure to explain how funds will be repaid.
How funds will be repaid.
In this portion, investors will want to know how they are going to get paid for their investment. A popular method of repayment is through dividend payments. The structure may vary depending on the situation. From this, in my personal experience, it's a good idea to include some type of statement that the terms may be negotiable. This allows the investors to make counteroffers about your set parameters.
Possible future funding needs.
Once an investor takes an equity position in the company, they are not fond of surprises. A most unwelcoming surprise for an investor is for them to find out after they invest, that additional debt may be needed, or further equity investments are required. Avoid this unpleasant conversation upfront. Make sure to provide an outline as to possible situations where additional funding may be necessitated. In doing this, investors are prepared for either a dilution of their equity stake or understanding that additional funds may be required in certain circumstances.
Summarize funding request and include in the executive summary.
The final step to fully utilizing your funding request is to summarize the section into three or four sentences and insert them in your executive summary. By doing this, investors will know right from the beginning how much funds are being requested and possible terms offered by the company.
Example of a funding request.
Starting a retail bicycle store requires significant upfront funds and working capital to ensure brand building and adequate market penetration. From this, our firm is requesting $50,000. Funding will be used as follows:
- Buildout for retail store 15,000
- Signage
- Construction Costs
- Storefront design
- Computers and software
- Inventory 10,000
- 30 Men bikes
- 25 Women bikes
- 30 Kid bikes
- Safety gear
- Accessories
- Working Capital 25,000
"Bikes and Accessories" will offer potential investors a 15% equity stake in our firm. Funds will be repaid monthly through dividends based on net profits. In the event, our firm identifies future opportunities in the marketplace; additional funding may be sought via equity or debt financing.
By: Paul Borosky, MBA., Doctoral Candidate.
Owner of Quality Business Plan.
Updated: 3/4/2022