Updated: Jan 3
Most financiers require collateral, own contribution and offtake agreements. Financiers prepare for the worst-case and want to make sure you also have some skin in the game.
We explain here exactly what they expect from you:
What is your own contribution?
Most financiers expect that the entrepreneur also invests capital into their business, Government Institutions expect a small portion like 10%, commercial banks expect easily 40-50% as your own contribution. This will ensure that you also have the interest to be successful and not give up easily. Out of my own experience, I can say that for most challenges there are solutions, you just need to find them.
What is collateral?
Collateral is an asset, such as Vehicles, equipment, real estate or inventory or also cash, that can be taken over and sold by the lender if your business can not make its payments. It is a way the lenders can recover their money if your business fails. Most traditional loans need enough collateral for security on all loans, plus suretyship from all shareholder and/or director of the business. Signing surety puts your personal assets on the line.
The majority of lenders will want to know how you plan to utilize the money and will want to see you are able to repay the loan. Some lenders may require annual financial statements to evaluate the financial position of your business and to ensure you’re not over-indebted.
What is an Offtake Agreement?
An offtake agreement is a not binding agreement between 2 businesses, it confirms the sale like quantity, quality, price and is a good indication that there is a market for the offered product or services.
Offtake agreements are usually used to assist the company to obtain finance and justify the setup or expansion projects.
An offtake agreement is an arrangement between a producer and a buyer to purchase or sell portions of the producer's yet-to-be-manufactured goods.
An offtake agreement is negotiated far in advance, often before the construction of the manufacturing facility and actual production has begun.
Offtake agreements make it easier for producers to obtain financing.
Offtake agreements can help buyers lock in a price and guarantee the supply of a product.
Understanding the requirements of financiers will make it easy for you to obtain funding. If you need assistance please feel free to contact us, click the link here!