It’s quite tough for a new company to secure financing from a commercial lender or mainstream bank for a business startup. New businesses are actually the riskiest loans for any a bank or lender. So understandably they’re worried about startup loans. And it’s for the reasons below:
Lack of expertise
In professional businesses, it is typical for banks to deny a startup loan to someone who does not have at least a year of experience working in the profession.
Lack of direction
Similarly to the proprietor having no expertise, lenders might not be familiar with a brand new company that does not have a reliable, experienced management team to help make the business work.
Yes, it is one of these “Catch-22” scenarios; you can not get a loan if you don’t have clients, but you can not start your business and get clients without the investment. If you can demonstrate that you have some influential customers lined up, that may make a fantastic impression on the lending company.
The best thing you can do if you’re denied bank financing is to go to other sources of funding or alternative lenders.
As a final resort, though, if all other means of funding fail, you might think about credit card funding for your startup. This alternative should be the last resort because the interest rates are high, and if your sales do not take off quickly, you might be in a deep financial hole.