Randall Castillo Ortega provides insight into how entrepreneurs can seek financing for their business

Randall Castillo Ortega provides insight into how entrepreneurs can seek financing for their business

To develop an enterprise, it is essential to have a novel and attractive idea for the market; but it is just as important to have the capital to develop the project. That is often the hardest part of launching the endeavor and causes plenty of sleepless nights for entrepreneurs. However, while finding investments to get the business off the ground is often challenging, it doesn’t have to be impossible. Randall Castillo Ortega, the founder of small- and medium-sized business lender RACO Investment, discusses how to prepare to find financing.

Much of the ventures fail before the age of two, this makes it a very risky segment and that’s why financial institutions often have resistance to lending. The entrepreneur has realized this and that is why they are afraid to come to apply for credit. In view of this, it is important that the entrepreneur, before reporting to the lender, is sure that his idea is supported by feasibility studies and that it is technically and financially feasible.

Another important aspect is that most entrepreneurs have no guarantee to offer and this also helps them to approach the entities to apply for credit because they know that the first thing they will be asked for is collateral. “This doesn’t have to be a show-stopper,” explains Castillo. “Private lenders will look at all aspects of the plan, not just the collateral available, to determine whether or not financing the project is viable.”

While it’s not impossible to find financing, it’s not something that can be taken lightly, either. It can be somewhat complicated because it must be shown that the idea raised has financial and technical viability and this is achieved through a feasibility study. For an SME in operation, it is not complex if you have up-to-date and reliable financial information and if you have clarity in the investment plan. As long as companies are ordered with their information, it will not be difficult for them to document a file to support a credit application.

It is important to show the experience that partners or owners have in the activity they develop. This shows financial institutions that the business or company is current and forward-looking. Commercial and credit references are vital. Keeping a credit and commercial record clean opens many doors and, on the contrary, having constant arrears denotes that the company has no pay culture. Have an orderly and real accounting. Financial institutions lend based on the numbers presented to them for analysis. If your numbers are unclear and orderly, the credit will possibly be denied.

Think of a business with future potential. By providing credit, the sustainability of the business over time is valued, that current revenues can be sustained or increased in the future in such a way that the company is solvent and progressing, and that it will be able to repay the credit. Have a guarantee, if at all possible. Lending institutions will generally require a guarantee to provide credit, but can also make exceptions in certain situations.

Adds Castillo, “Keep in order all legal aspects of your company, such as representatives, powers, partners, among others. Stay up-to-date on paying your taxes and social charges. When you need financing, you should be very clear about the investment plan, that is, where you will use the money.”

It is important that the partner is involved in the process and that the person in charge of the financial party has complete control of the financial situation of the company. Other requirements that are requested are usually the company profile, partner experience, financial statements, cash flow, warranty detail, persons and forms of each entity.

There’s a lot that goes into securing credit for a business proposal and it isn’t meant to be easy – if it were, everyone would do it. However, for those that show the initiative and can present a clear, promising plan, the rewards are worth it.