Many people certainly have the dream of having their own businesses. It is natural for someone to wish for a financial freedom as well as working for themselves instead of doing someone else’s tasks. Even if you have a good business idea and plan, the main issue is mostly the funding. How to build your business without the money you need? Banks are often not willing to lend loans to startups because their success is yet to be decided and that is a big risk. Similar to pensioners, young startup minds struggle to get loans approved.
Main concerns of the banks with startups
Most of the banks do not issue loans for startups because of the little amount they are asking for. These amounts are just not worth because of the fixed costs of credit checks and other procedures. In addition, a startup – as any failed founder knows – also carries a high risk. Because about 90 percent of the startups do not reach the desired success and come to a failure after a while. This means that banks are simply afraid of not being able to receive the full amount that they lent. So, it is up to the startup founders to convince the banks that your idea is going to be successful. For this, it is important to know what success means to banks.
Surveys of banks regarding to giving loans to startups have shown that they are actually willing to support startups. However, they believe that the risk factor should still be an important factor in their deciding process. It is, therefore, very important to introduce a strong and correct market analysis along with your application. Show the potential lenders how big is the market and how you will take the advantage of it in the near future. You should discuss this in detail in the business plan and the more credible you are, the higher your chances are.
Collateral and guarantee
In order to give banks a sense of trust, at least ten to twenty percent of the contemplated loan amount should be raised from own funds. This does not give the bank any security in terms of financing but a psychological trust that the founder is also risking his/her own money meaning that they believe in their business.
So if you want to have a bank loan, you cannot skip a solid business plan, because this is your door to success. The better, the more coherent and detailed it is, the higher your chances of being funded by reputable banks will be. Creating such a solid business plan will also benefit you because while doing so you may notice potential weaknesses. In any case, a lot of personal time should be invested here, because the business plan including a three-year financial planning is one of the documents that banks often want to go through before a personal meeting. So present your idea as well as the market for it as vividly, understandably and interesting as possible.