Securing capital in a declining economy – it is not all doom and gloom

Cash flow is the lifeblood of all small businesses. Capital is needed to start up, operate through hard times, and provide a good chance of becoming a profitable enterprise.

New Zealand, like most of the world, is in the midst of a credit crunch. As a result loan criteria from banks, financial institutions and other lenders has tightened. But it is not all doom and gloom, there is still money out there – it is just a matter of being smarter and more diligent in how you find it.

Three key things you should be doing to improve your ability to secure capital are:

1. Have a sound business strategy.

Your strategy must be well thought out and realistic. You need to be able to articulate your plans, and have people understand and want to support them. And most importantly, you need to be able to clearly explain how the money will be used, and how it will be repaid.

2. Be prepared.

Ensure all your documentation is in order, and if you're talking to investors make sure you are prepared for the questions. If an investor wants to "look under the skirts of the business" you have to be ready for it.

3. Network.

It is up to you to find the people who are prepared to, and have the ability to invest. Don't waste time talking to people who don't want to invest, or add value to your business. Be prepared to change tack to find the people who are.

Andrew Hamilton, Chief Executive of The Icehouse, a business growth centre that helps to support and grow New Zealand businesses has considerable expertise in working with companies who are seeking finance.

"It's not impossible to get capital in this climate. You need to make sure your strategy is sound; you're well prepared and invest time in making the right contacts," says Andrew.

"Our sense in this current climate is where strong relationships between a SME and say a bank remain, access to capital in the form of a loan is still there. However, the market for venture or equity capital has definitely slowed down and people are more cautious. There is still money out there it just takes longer to get, and it's harder to find investors."

So what are lenders looking for in this climate? According to Andrew the number one thing lenders are looking for is proof of cash flow.

"It's really a greater evidence of certainty. Even security by itself is not enough for lenders. You need a good, sound business proposition."

As a small to medium enterprise who should you be approaching to secure capital?

Andrew says, "An element is always fit for need. As a small business owner, get out there and find out what networking events you can go to. In New Zealand it's incredibly easy to get access to people. You can ring up and speak to Sam Morgan. You might not get an appointment, but then again you might. The onus is on you."

And a final word from Andrew on what is the key thing that could make the difference between securing capital and not.

"Preparation. It sounds boring but it's not about you, it is about the investor and what they want. You have to understand them and know what they are looking for."