USE OF FUNDS RECOMMENDATIONS
When a bank asks a Business to prepare a ‘Use of Funds’ summary for a credit application, not only are they interested in what the business will do with the Capital should they choose to deploy it - they are also seeing how realistic and organized the borrower is. This reply should be a thoughtful insight to where the business is going that is focused on a steady incremental growth curve. Remember accelerated growth in many instances also comes with accelerated cash needs.
Common Do’s and Don’ts for preparing Use of Funds Documentation
- Discuss how the capital will allow you to purchase goods and services to augment margins - Demonstrate how low-cost capital replacing short term amortizations will go directly to profits
- When earmarking funds for new hires, be sure to include ‘soft’ costs for training, payroll taxes and benefits
- Point out the types of marketing/advertising you intend to deploy (where applicable) and project modest ROI
- Be conservative and succinct with expansion costs (where applicable)
- Don't mention using capital for speculative endeavors (think buying land, or delving into another field of business)
- Don't broach using Funds to buy equipment unless you want the lender to buy the equipment on your behalf
- Don't insinuate that the money is going to be used to pay back prior liens or encumbrances - this will tarnish reputability
- Don't include repaying personal debt that is listed as a liability on the balance sheet
Remember, banks are thorough and conservative - so your Business should be too - when it comes to using borrowed funds. Your BCCUSA Consultant will work with you to make the right first impression with Lenders.
BCCUSA: Know BEFORE You Borrow