For business startups, one of the biggest requirements for getting operations running smoothly and hiring the necessary team is cash. Unfortunately, new businesses are one of the riskiest loans a bank and lender deals with. Why? To better understand why startups are turned away, you must consider the four C’s of credit (collateral, capital, capacity and character).
- Lenders will expect to see business assets than can be used to create products or services; assets that can be turned into cash to make payments on the business loan. For startups (especially services businesses), it can be very difficult to reassure lenders with so few business assets.
- Collateral is pledged as security for repayment of the loan and is forfeited in the event of a default on the loan. New business owners will have little collateral, unless they have personal assets or a co-signer wiling to pledge assets.
- Of course, new businesses will not have the financial history necessary to show it has the capacity to generate enough cash-flow to successfully pay back the loan.
- While good credit does not guarantee that a business will be able to secure a loan, bad credit will definitely make the task a huge struggle.
Common Bank Responses to Startup Loan Requests
If you are a new business owner, the thought of being turned down for business financing can be overwhelming. What will the bank’s response be? What can you expect? The following are just a few of the responses you might receive.
- “Sorry, but we do not provide loans to startups.”
- “We will only be able to give you $50,000 because that is the limit for SBA express loans for startups.”
- “We require an equity injection for you to qualify for financing.”
- “You simply do not have the good credit you need to be approved.”
If this has been your experience, don’t worry. There are still alternative options available for your business startup.
Where to Find High-Risk Business Loans
A high-risk business loan is offered by a high-risk specialist to companies that struggle to secure a traditional bank loan. Business types and industries like automotive, construction, retail, trucking, hotel and motel and beauty salons are just a few businesses on a very long list that have a difficult time securing financing. A high-risk business loan not only provides cash quickly, but also offers a flexible collections process – without the hassle, complicated contracts and long wait times.
Author Bio:As an account executive, Michael Hollis has funded millions by using alternative funding solutions. His experience and extensive knowledge of the industry has become a true asset for First American Merchant.