Use the P.R.A.Y. Method for Obtaining Financing

One of the toughest challenges faced by small business owners and entrepreneurs tends to be the ability to obtain financing. This is in part due to the reality that the level of difficulty has increased for obtaining financing more than in previous times. Also, it is more difficult due to the small business owners and entrepreneurs, in many cases, not preparing to position themselves optimally to obtain access to financing.

When you are a small business owner or an entrepreneur, it is imperative to use the P.R.A.Y. method in order for obtaining financing. This does not refer to the sense of a real spiritual prayer, even though some people may find such prayer to be beneficial. Rather, this refers to engaging in the usage of a successful business model that will empower you to have access to the financing you need for your business.

In the P.R.A.Y. method, it is noted that “P” stands for preparing in the right manner in regard to both yourself as well as your business. “R” stands for researching the kinds of financing that are available to you as well as the various kinds of investors and lenders in order for you to discover the best options. “A” stands for assembling the required documents accurately and quickly. Then “Y” stands for yield, which means that you must exercise patience during the process and permit the investor or lender to be in charge of the process while also demonstrating flexibility in responding to their requirements in an efficient and timely manner. When you are careful to apply the four steps of this process, you will likely be able to dramatically improve your chance of gaining access to your business's correct kind of capital.

Prepare

Since it has been mentioned that it is necessary to be prepared, it is natural for you to wonder how this is done in the right way. Preparing entails conducting an assessment of the current financial condition of various aspects of yourself and your business. Thus, consideration must be given to your net worth, which is your assets minus your liabilities. Then consideration must be given to your credit performance, which induces your credit score as well as your credit report. Moreover, consideration must be given to your disposable income, which involves your income minus your expenses. There will also be other items of significance that will undergo evaluation by prospective lenders or investors when making a decision concerning finances for your business. Furthermore, it is imperative to ensure that the business is prepared along the way, which is achieved by ensuring that all financials are up to date by providing a solid business plan and formulating realistic financial projections.

Indeed, it is surprising that many business owners fall behind in the matter of filing business tax returns and personal tax returns. It is frequently the case that they are behind not only for the current year but also for many back years. When you have gotten behind in filing personal or business tax returns, it is not like you will acquire the capital you desire.

Investors and lenders rely on access to your tax returns to analyze the profitability of your business because they realize that most people will not indicate a higher level of income than they really make as a result of not desiring to pay a higher level of taxes. On the other hand, the understated income can also cause negative impact on the possibility of accessing capital, which plays a key role in the amount that could be available to you. Upon completing the preparation of the information for both you and your business, you must address the amount of financing that you require for the operation of your business and the reason why the financing is necessary.  

A large number of small business owners and entrepreneurs tend to make underestimations or overestimations regarding the amount of capital that they require because they are eager to get into high gear with moving their business plans forward. Overestimations occasionally result from guessing, which indicates that more effort should have been applied in the planning phase. In the case of underestimating, the small business owners and entrepreneurs may forget to include the startup costs and may provide an overestimation of sales. They may further not realize what their costs are in terms of service delivery and product delivery. Or they may not have a good understanding of the minimum amount of their orders. On the other side of the spectrum, the most significant reason for underestimating the amount of necessary funding is the failure to consider fixed expenses for three months as part of the operational capital.

Research 

It is necessary to conduct research pertaining to the different investors, lenders, and the products that are available in to know which one will be the best solution for your business. Similar to the world of social media, where you will find an abundance of diversified companies and businesses online, this is also how it is in the realm of financing. Investors and lenders possess varied criteria, preferences pertaining to industries, ranges of accessible funding, and repayment expectations. Moreover, they also may possess different requirements concerning the return on their investment. This is why small business owners, along with entrepreneurs, should conduct the necessary research and get help prior to contacting a firm to seek funding in order to make sure that they will be contacting the right organization.

Assemble

It is now time to engage in the assembly of the information. Just as in the process of seeking a mortgage for the purpose of buying a house, the reality is that several documents are necessary in order to have access to funding. It is helpful to begin assembling your documents well ahead of time when seeking business financing. Note that there are standard documents that are necessary. You must provide your business and personal tax returns for the past three years. You are required to provide a statement of your personal finances along with business financial statements that are designated as being year-to-date. Moreover, you must provide aging reports, which are your accounts payable and accounts receivable. A business plan summary as well as a debt schedule should accompany these documents.

Understand that there may be other items requested up front, or they may be requested at various intervals of the process of underwriting. Your application will be processed more quickly if you are careful to submit the requested documents as quickly as you can. You may also need to provide your bank statements, your driver's license, your equipment list, your resume, your company formation documents, documents for sales of customers, agreements, certifications as well as other contracts. Your stress level will be greatly reduced when you are careful to assemble these documents ahead of time. This will also ensure that the information is accurate and that it is submitted in an acceptable amount of time. It is wise to provide the documents in an electronic format so that it is easy to email them or to upload them when they are requested.

Yield

The final part is truly difficult due to the fact that you must yield to the analysts as well as the underwriters. They will maintain the lead over the outcome. This can seem to cause frustration, particularly when they ask you for additional documents at different times along the way instead of demanding all documents at the beginning. This process can seem torturous, and you may feel like you will lose your mind. But despite how difficult the process can seem, it will finally come to an end, and you will be either granted the approval to access the funding you desire, or you may need to discover another way to obtain the required capital for your business.

But do be mindful that although you may be approved, this does not always result in the deal's closing with the money actually being given to you. The financing can be disrupted until the finances reach the bank account of your business. But the reality is that there is not much you can do except to yield and have a positive outlook as you try to hope that things will turn out in your best interest. When you prepare, research, assemble, and yield during the process of seeking financing for your business as an entrepreneur or small business owner, you will likely increase your chance of gaining access to the desired funding and increase the amount you may be entitled to receive. When you apply the P.R.A.Y. method, this proves to be a valuable tool to help you acquire funding more quickly and successfully.