Raising Finance 101: What Lenders & Investors Look For

Introduction

You have ideas, customers, and a sense that your business could grow faster. What you do not always have is enough cash to do it comfortably, and that is usually when people start thinking about loans or investors.

Raising finance can feel like a closed club with its own language and rules. This guide explains, in plain English, what lenders and investors look for. It will help you decide if you are ready, what to tidy up first, and how to give yourself the best chance of hearing “yes”.

Start here – are you ready to raise finance?

Before you speak to a bank or investor, pause and get clear on why you want the money. Are you smoothing a short-term cash squeeze, funding growth, or fixing old problems such as tax or supplier debts? Lenders and investors feel very differently about each of these.

Outside finance should support good habits, not replace them. It is worth asking whether better control of spending, faster invoicing, or chasing overdue customers could reduce how much you need to raise.

Finally, check in with yourself. Extra finance means extra responsibility and risk. You need to feel comfortable with that before you move ahead.

The main types of business finance in plain English

Bank loans and overdrafts

A loan is a lump sum repaid over an agreed period, usually with fixed monthly payments. An overdraft is a flexible limit on your bank account that lets you dip into the red when needed. Loans often suit one-off investments; overdrafts are more about smoothing everyday ups and downs.

Asset and invoice finance

Asset finance uses a specific item, such as a vehicle or piece of kit, as security. Invoice finance is where you borrow against unpaid customer invoices so you can get part of the cash early. Because these are tied to something specific, lenders may see them as lower risk.

Investors and equity

Bringing in an investor is different. Instead of taking on a debt to be repaid, you sell a slice of your business in return for cash. Investors earn their return if the business grows in value or pays out profits in future, and they will usually expect a say in key decisions.

Friends, family, and directors’ loans

Many smaller businesses start with money from the people closest to them. This can be quick and flexible, but it comes with emotional strings attached. If you go down this route, be clear on terms, write things down, and treat it as seriously as any other finance.

What lenders look for when you apply for a loan

Different banks and lenders have their own processes, but most of them are trying to answer the same questions. Can this business comfortably afford the repayments from its normal cashflow? Are the numbers tidy, up to date, and believable? Has the owner shown they are reliable and organised in the past, and is there some security or back-up if things do not go to plan?

The clearer your answers, the easier it is for someone on the other side of the desk to say “yes”. Well-kept records, recent accounts, and a basic cashflow forecast make a big difference. Messy or incomplete information forces the lender to assume the worst.

They will also look at your wider track record. Do you pay suppliers and tax on time? Have you handled previous borrowing sensibly? Even if you have had problems in the past, it is usually better to explain them openly and show what you have done to fix the root cause. Lenders also like to see that you have “skin in the game” – time, money, and energy already committed.

A few common terms explained:

• Security – something of value the lender can take and sell if the loan is not repaid, such as a vehicle or building.
• Personal guarantee – a promise from you as an individual to repay the loan if the business cannot.
• Covenant – a rule in the loan agreement, for example keeping within agreed overdraft limits or keeping up with tax payments.
• Equity – the ownership slice of the business that belongs to you and any investors.

What investors look for (and how they differ from lenders)

Investors are not mainly interested in fixed repayments. They are looking for the chance that their slice of the business will grow in value over time.

They will want to see that there is room to grow in your market and a clear reason why customers will choose you instead of others. They will look closely at you and your team, because they know that ideas are common but follow-through is rare.

Investors also think about how they might one day get their money back with a return. That might be through a future sale of the business, a buy-back of their shares, or a stream of profit share payments over time. Because of this, the relationship can feel more like a partnership than a simple loan, so you need to be honest about how much control you are happy to share.

Getting funding ready – a simple checklist

If you think you may want to raise finance in the next year or so, these steps will help:

• Bring your records up to date so you can quickly show recent sales, costs, and profit.
• Make sure you know where you stand with tax, VAT, and other key payments, and tidy up any problems.
• Prepare a simple one-page summary of your business, why you need the money, and how it will be used.
• Put together a basic cashflow and profit forecast that shows how you will manage repayments or deliver a return for an investor.
• Stress-test your plan by asking “what if sales are slower, or costs are higher?” and noting what you would do.

Doing this work in advance means you are not scrambling when an opportunity appears or when the bank offers a meeting date.

Common pitfalls when raising finance

Some themes come up again and again when funding applications fail. Being vague about what the money is for is high on the list. Lenders and investors are nervous if the answer sounds like “a bit of everything” or “just to feel safer” without a clear plan attached.

Another common issue is over-optimistic forecasts that rely on everything going perfectly. It is fine to be ambitious, but your plan also needs to show how the business will cope if things are slower than hoped. Trying to hide problems nearly always backfires. The key is to be honest, show you understand what went wrong, and demonstrate the changes you have made.

• The clearer your plan and numbers, the easier it is for lenders and investors to say “yes”.
• Banks care most about affordability, reliability, and having a sensible safety net.
• Investors care most about growth potential, the people running the business, and how they will one day exit.
• Getting “funding ready” well in advance can save cost, stress, and rushed decisions later.

How Sanders Partnership can help you get funding ready

Raising finance is easier when you have someone on your side who understands both your day-to-day pressures and what lenders and investors need to see. At Sanders Partnership, we help SME owners turn a loose idea of “we might need funding” into a clear, practical plan.

In a focused review, we clarify why you want the money, how much you are likely to need, and what success would look like. We then look at your recent figures together, highlight anything that could worry a lender or investor, and agree simple steps to tidy things up and fill any gaps.

From there, we can help you shape a straightforward funding pack: clear recent numbers, a short forecast, and a plain-English summary of how the money will be used and repaid or turned into a return. Our aim is to help you walk into funding conversations prepared and confident.

If you are planning a project, expect a cash squeeze, or simply want to explore your options, get in touch to book a call. Together, we can decide whether raising finance is right for you now, and how to approach it in a way that supports your long-term goals.

Important: This article is for general information only and is not personal advice. Always take professional advice before making major financial decisions or signing finance agreements.