Ask an underwriter: Do I need a business plan to apply for funding?
Chris Capecelatro is our U.S. director of underwriting, and has been working at Funding Circle since 2013. Previously, he managed credit risk for a global casualty insurer in addition to working in commercial lending for a local bank. In this series, Ask an underwriter, he’ll be answering your most burning questions about underwriting.
The short answer is yes. Lenders will usually want to understand why you’re looking for funds and how you intend to use the money. However, this doesn’t necessarily need to be a multi-page tome that you’ve slaved over for weeks. We don’t need a 5-year plan — we just want to know that you’ve given your business and financing some thought. Here at Funding Circle, we’re primarily looking for two things:
First, applicants can position themselves for success by clearly identifying how much funding they need and what they need it for. When you explain your intended use of proceeds to your Funding Circle account manager, that information will be passed to our underwriting team, which helps us understand your business’ trajectory.
“Working capital” is a valid reason to seek financing, but is also rarely a sufficient explanation for an underwriter. We’d love to hear a little more detail about how you plan to use the funds, so instead of “$100K in working capital,” be more specific, like “$33K for inventory in advance of the busy season, $37K for new hires, $20K for remodeling, and $10K for radio advertising.” Doing so will reinforce our confidence in your planning and ability to effectively deploy the funds.
Secondly, we like to see that applicants have given thought to how these funds fit in with the overall growth and development of their business. “I need $33K to buy a full unit of inventory direct from the manufacturer. This will help us prepare for the holiday season while lowering per unit costs” is vastly preferable to “I need $33K for inventory,” because it demonstrates both careful reflection as well as methodical planning — both of which help lenders make more measured decisions.
In short, having a detailed narrative around exactly what the request is for and how the proposed funding will help the business is key. Additionally, having this information upfront can help save us time and back-and-forth questions later in the process, which means you get your funds faster.