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Planning for financing is one of the least glamorous parts of running a business, but it can make all the difference when an opportunity shows up. I learned this lesson the hard way when my business, a farmers market popup serving tiny pancakes called poffertjes, had a chance to take over a concession in a Seattle park.
It was 2016 when I heard there was an opportunity to operate a concession at Golden Gardens. My husband and I applied with the help of a business coach at a local CDFI, and a few months later, we learned that our proposal was approved for a 5-year lease. We couldn’t believe that this opportunity landed in our lap.
But first, we needed a loan to remodel the space and purchase equipment. Up until then, we had been diligently preparing for financing by protecting our credit, personally financing when we could, and not overextending our access to credit. Furthermore, the business showed year-over-year revenue growth and profitability. We built conservative projections and established a track record by securing and paying back a smaller loan first.
On paper, we had done exactly what we were supposed to do. Still, there was a problem.
When we applied for a loan in January 2018, the lender said that we needed a finalized lease. However, we did not yet have an executed lease because the contract still needed to be ratified through Seattle City Council, which wouldn’t be until late March 2018.
From the lender's perspective, that missing piece mattered. Without a finalized lease, the risk looked very different. From my perspective, waiting for that final loan approval threatened the entire timeline. If construction started too late, we would miss the summer season that the business needed for cash flow and ironically, to start making loan payments.
In the end, the lender provided us with the loan, choosing to do small disbursements for each stage of the project rather than funding us in one lump sum. This allowed construction to begin without the lender risking the entirety of the loan amount if something came up through the council approval process.
No amount of planning would have necessarily prepared us for the reason why the lender was hesitant to give us financing—but the planning we had done up until then helped us move through that curve ball with more ease. When we finally opened our doors in May 2018, we dove right into the busy summer season just in time. Though it may have looked seamless from the outside, nothing about it was done overnight, and it took a lot of time and methodical patience.
What to plan for before you borrow
As a Business Coach who has gone through the financing process myself, I’ve come up with six practical tips to help you plan before you borrow money.
1. Know exactly what the money is for and how you’ll pay it back.
No matter how a person gets into business ownership, the same basic truth tends to apply when it is time to seek financing: lenders want to see that you understand your numbers, your timeline, and how the debt will be repaid.
Be specific about how much you need, what it will pay for, and what cannot wait. This is your Use of Funds statement, which should be included in your business plan.
2. Get your documentation in order early.
Tax returns, financial statements, projections, leases, permits, and formation documents (for businesses structured as an LLC) can all affect timing. Organizing as you go, is boring stuff, but keeping documents like this available-either physically or digitally-can make them easier to find when you need them.
3. Build projections that reflect real life.
Include seasonality, ramp-up time, slower months, and the possibility that revenue may take longer to arrive than you hope.
Financial projections are estimates, yes, but they are also one of the best ways to pressure test an idea. Projections force you to ask practical questions: When will revenue from this new phase in your business begin? What happens if this phase is delayed? Can the business pay its debts during a slower than expected ramp-up?
(Pro tip, as a Business Coach, I am often looking for months where the business operates at a loss on projections built by the business owner. This shows that you are expecting slow periods based on what you know about your business! )
4. Think about cash flow, not just total sales.
A business can look viable on paper and still struggle if debt payments start before revenue does.
5. Have a Plan B.
If a lease is delayed, a permit is late, or construction takes longer than expected, what changes? What expenses can wait? What support do you need? (For our business, it was working out of the the Commissary Kitchen longer so that we could continue catering and farmers markets while our own kitchen was still getting built.)
6. Ask for help early.
A good business coach, accountant, or lending partner can help you spot weak points before they become emergencies. Organizations like your local Small Business Development Center (SBDC), SCORE office, or Department of Commerce (Business Oregon or Washington Department of Commerce) will have resources.
There are many stages to a business idea, and the exciting part is usually the vision. Borrowing asks you to do something different. It asks you to slow down, get specific, and make a plan for the parts that are uncertain. That may not be the fun part-and it doesn’t remove every potential obstacle, but it is often what gives a business the best chance of being ready when an opportunity comes.
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