Boost Your Scale: With Powerful Lender Pitches
Every DTC brand founder who has scaled or tried to scale knows the same hard truth:
Scaling an inventory-based business takes cash – and lots of it.
Why?
Because as you scale revenue you constantly need to place bigger and bigger inventory orders to keep up with sales, which means:
More and more operating cash flow gets consumed by inventory purchases.
So how the heck do successful DTC brands scale their inventory levels without running out of cash?
Part of the answer to this question is to raise debt funding to finance your inventory.
As an earlier-stage growing brand with little to no historical financials, it can be hard to get lenders to give you the inventory financing you need.
Furthermore –
Many DTC brand founders don’t understand how to tell a compelling story that gets lenders excited about lending you their capital.
Here’s the good news -
I’ve run countless successful debt fundraising processes, with a multitude of brands, and today I’m going to give you 3 simple, proven tips for pitching lenders.
The result will be a newfound ability to quickly and easily raise the debt capital you need to achieve your brand’s growth goals!
Let’s jump in!
Tip #1: Paint a Compelling Picture of Where You’re Headed
So, here’s the thing.
Are lenders going to look at your historical financials?
Yes.
Are they going to care much about them?
Not as much as you think.
Why?
Because you’re an earlier-stage growing brand, so your historical financials don’t tell them much about where you are headed.
And here’s the reality –
Where you’ve been isn’t going to pay their loan back, but where you’re headed will.
This brings me to tip #1 –
Craft a clear, compelling picture of where your brand is headed.
And even better – include details on how the loan you’re requesting is going to enable you to make this compelling vision a reality.
When lenders can see a clear connection between
Where you currently are
Where you’re headed
How their loan will build the bridge between the two,
They are much more likely to get excited about the deal and give you the debt capital you are asking for.
Tip #2: Create 3-Statement Projections That Show How You’ll Pay Them Back
What’s the major difference between debt and equity?
There are several, but in the context of this article, I want to highlight one major difference:
Debt needs to be paid back!
I cannot underemphasize how important this point is.
Debt must be paid back, and lenders are analyzing the heck out of this on their end.
Their underwriters are pouring through the data you provide them during diligence to forecast the likelihood that you can pay their loan back without defaulting.
If they have any concerns that you can’t – you won’t get the loan you’re asking for.
How can you ensure that lenders feel comfortable about your ability to repay them?
Create 3-statement financial projections (with a P&L, balance sheet, and cash flow statement) that clearly show your brand drawing down on the loan then paying it back with your future operating cash flow.
If you’re unsure about how to do this – reach out to us at Free to Grow CFO. We are experts at creating 3-statement projections for debt fundraising, and we’d be thrilled to help you!
Tip #3: Options, Options, Options
My third tip is simple but powerful.
Make sure you have more than one option.
In fact, when I raise debt funding for the brands I service as Fractional CFO, I always source at least 3 different lender options.
Why?
Simple – if you only have one option you don’t have any negotiating leverage. Additionally, leverage aside, how can you be sure what the market interest rates and deal terms are if you’ve only sourced a single option.
The more options you source, the better feel you’ll have for how the debt markets are currently structuring and pricing deals.
And – the more likely you’ll be able to negotiate better terms and pricing with each lender.
Summary
In summary –
Scaling an inventory-based DTC brand requires substantial amounts of cash, and growing brands often struggle to raise enough debt capital to finance inventory purchases.
However, if you learn to pitch lenders on your capital needs, you can raise the debt capital you need to scale.
Follow these 3 simple tips that can help ensure a successful pitch:
Craft a clear and compelling vision of where the brand is headed, emphasizing the connection between the current state, future goals, and how the loan will facilitate that growth.
Create 3-statement financial projections, including profit and loss, balance sheet, and cash flow statements, and use them to show lenders the brand's ability to repay the loan.
Source multiple lender options to ensure negotiating leverage and a better understanding of market rates and terms.
Use these 3 tips in your lender pitches and your odds of successfully raising the debt capital you need to scale will skyrocket!
By the way – one quick note I want to mention:
If the thought of crafting lender pitches and creating 3-statement financial projections overwhelms you, and you don’t have a CFO on your team, consider hiring a Fractional CFO to help.
At Free to Grow CFO we provide founders of growing DTC brands the executive-level CFO advice and expertise they need scale alongside healthy profit, cash flow and confidence.
And – raising debt funding is one of our specialties.
From building 3-statement financial models to crafting lender pitches, we can save you loads of time and frustration by helping you run your next debt fundraising process.
If you’re ready to learn more about how Free to Grow CFO can help you raise the debt funding you need to scale click here to book a free intro call.
Until next time, scale on!
