Why start-ups get rejected by banks
Maybe you're considering starting a business? Or maybe you've just started a new business? Unfortunately, it's not easy to borrow money from the bank for a start-up business. Firstly, the risk is greatest in the beginning, before the business is up and running, and secondly, the amounts are quite small. The bank likes low risk and tends to lend large amounts to large companies. It's simply not worth the time the bank spends on start-ups.
What is considered a startup?
A start-up company is a company that has not yet started operations or submitted its first accounts to Bolagsverket. Some banks even require three financial statements in order for the business not to be considered a start-up. At Qred, we believe this is wrong, as the first three years are the most difficult for a company. This is when you may need temporary capital injections to grow. It's always a good idea to calculate the cost of borrowing. For example, using a business loan calculator.
Start-up loan - a loan to start your own business
Before you apply for a business loan, you should have done your homework. What is your business going to do, how much money do you need to get started? How much can you repay per month? You should think this through carefully so that you apply for the right amount and can clearly explain how the loan will be repaid.
What type of loan is best suited for startups?
- Traditional bank loans are best suited when the company has made some progress and has an established cash flow.
- A business loan from a government agency can work if you have plenty of time and can make a good presentation with a business plan, budget and project plan.
- A business loan from Qred is suitable if you have a temporary need for liquidity. Qred is one of the few players that provide loans to start-ups.
- Equity is suitable when there is great potential for the company's value to increase if the company succeeds, but there is a high risk that it will take longer than planned.
Loans to start-up companies
In our Qred Score, we, like many other banks and lenders, consider limited liability companies as something positive. You've gone in with a share capital and there are usually several people in the company. You can also add someone to act as a personal guarantor alongside the loan applicant. This is called a guarantor, and our requirements for a personal guarantor are:
- That the person must be a Swedish citizen
- Keep your finances in order
- No debt balance
A payment history does not prevent us from granting a loan, but it can be an obstacle. You may be offered a lower amount at a slightly higher price before you have made any payments.
Loans to new sole proprietorships
As a newly established sole proprietorship (ENK), it can be difficult to find the right type of financing. Most often, you have a slightly smaller business that is seasonal or otherwise sensitive. Banks have traditionally struggled to offer affordable loans to sole traders. It simply hasn't been profitable enough. At Qred, we believe this is wrong, which is why we want to help the smallest and start-up businesses with financing. We do this by offering smaller loans, and in this way we get to know each other and can increase the loan in the long run.
Loans for startups
As with all other loans from Qred, it is an advantage if you can get one or two people to personally guarantee the loan. This means that you will be personally responsible for payment of the loan. If you and the other person have your finances in order, it is usually easier to cover both the loan amount and the fee for the loan.
Loans to start-up limited partnerships
As mentioned, Qred can help all types of companies with financing. We take a very positive view of two people sharing responsibility between a limited partner and a general partner.
Credit rating for start-ups
When you apply for credit for a start-up company, a credit check is often carried out on the company. It is very rare that the credit rating is particularly high, as the credit information agencies have no history to base the rating on. As a company, you deserve a high credit rating by having a stable and predictable turnover and profit and avoiding any kind of payment default.
At Qred, we have our own Qred score, which takes into account the business concept and the people behind the company. Call our agents for a professional assessment and a quick credit decision.
Almost every day, someone calls Qred to ask if they can get a loan to finance their start-up company. The first thing we ask is whether the company is registered with the Swedish Companies Registration Office (i.e. that it has a valid organization number). Then we try to find out where the business is in its development and what its needs are. Business loans are an important part of the financing, but there are often several sources of financing that you should consider in order to put together a solution for your business that can help you meet both short-term and long-term needs.
There are some obvious questions to ask yourself before you start raising startup funding, namely:
- How much funding does your business need?
- When can the company start repaying those who have invested in or lent money to the company?
- Do you need to borrow money to get your business up and running?
- If so, how much?
- What repayment period is realistic?
- Can you defer investments so that you make some of them later - after you've had the opportunity to build up good results or generate enough profit to cover at least some of the costs yourself?
- Once you have an idea of your needs, there are a few options to consider to raise the capital you need to get started:
1. Own funds
Many entrepreneurs do not want to mix their personal finances with their company's finances. This is a good idea, but in the beginning, you are the one who has the best insight into the business idea and its potential, and therefore you are the one who can best assess the risk. Therefore, you should always be prepared to invest some of your own money to get started. It's also a strong signal to banks and other lenders that you believe in your business idea. Remember, 99% of all businesses are financed with their own funds!
2. Traditional sources
The traditional big Swedish banks rarely lend money to small businesses, especially start-ups, unless the owners already have a long track record and a strong personal relationship with the bank. They often require collateral in the form of real estate or personal guarantees. A traditional bank loan can usually be set up with a long repayment period of 3-5 years, but it usually requires a lengthy process with high collateral requirements and, in some cases, expensive set-up fees.
3. Factoring
Another option is to sell your invoices, which is now often used as an alternative or supplement to traditional business loans. Factoring works well for small amounts and shorter periods and is usually quick and easy, but usually more expensive than business loans.
4. Alternative business loans through digital channels
The fastest alternative is now a digital service that emerged in the wake of the financial crisis, when banks largely stopped lending money to small businesses. These digital players tend to have lower costs than the big banks and have simplified the application process so that it can be completed in minutes online. Traditional factors such as credit rating and business performance still play a role, but new social factors such as the quality of the website, web traffic, social media presence and ratings on comparison sites combine to give a better picture of the business and its potential to repay the loan.
What does it take to get a loan application approved? Typically, these alternative lenders will want to see a well-ordered personal finances, understand the business idea, understand why the loan is needed and how it will strengthen the business. A good credit rating (no outstanding debts, no payment remarks and stable income) increases the chances of getting a loan.
3 ways to fund your startup
Starting your own business is not easy, but it can be even more difficult to get a profitable business up and running without capital. After all, marketing, machinery, premises and employees cost a lot of money, but are crucial to the future of your business.
So to grow your business, you need to inject capital into your business. Fortunately, there are a number of financing options if you don't have the means to invest your own money.
Below you'll find three ways to finance your startup and their advantages and disadvantages.
1. Business loans
Business loans are the most common form of business financing today. With a business loan, companies can borrow a lump sum that they can use for optional investments, such as machinery, premises or employee salaries, to grow their business.
The loan is repaid according to a fixed amortization schedule, either daily, weekly or monthly, together with interest and other costs.
There are usually two different types of business loans:
- Secured loans.
This type of loan requires "collateral" in the form of, for example, a mortgage on the business or property. The interest rate for this type of loan is usually lower, but at the same time the loan requires a lot of time-consuming administrative work. - Unsecured loans.
Here, security is not always a requirement, but the most important thing is that the company and its representatives have a good ability to pay. The application is made digitally, and the money can be paid out much faster than with secured loans.
Pros and cons of business loans
Advantages:
With a business loan, you can get capital into your business quickly and pay back at a pace that suits you. In addition, you can apply for a business loan to avoid strain on your and/or your company's credit rating.
Disadvantages:
Not all lenders offer loans to new businesses. This is because many start-ups have not yet reached a stable turnover. If the business has uncertain finances and low income, the risk for the lender increases, which can lead to high interest rates or rejection of the application. Qred tries to find solutions to help even start-ups.
2. Risk capital
Venture capital is a popular form of investment where individuals or companies invest money in start-up companies. In exchange for the capital, they receive a share of the company, which means they get to share in future profits.
As the name suggests, this is a form of investment that is associated with high risk. Therefore, it is primarily suitable for start-up companies with high growth potential in the near future.
Pros and cons of venture capital
Advantages:
You get a large amount of money into the company that you can use to drive the business forward. If you find an investor with good business skills, you can also get a good partner who wants the company to develop in the right direction.
Disadvantages:
You give away part of your business, which means you can no longer make decisions on your own. Read more about venture capital if you are interested in this financing option.
3. Crowdfunding
Crowdfunding - or crowdfunding - involves ordinary individuals investing a small amount of money each to fund a business or project they believe in. The concept originated in the US, but has become a global phenomenon in recent years.
Pros and cons of crowdfunding
Benefits:
If your startup is developing innovative products or services, crowdfunding can be a good option for raising capital. It can also be a good way to market your business to the right audience.
Disadvantages:
Disadvantages:
Many platforms may charge a commission on the contributions raised for the project. Crowdfunding is not suitable for all businesses, especially those developing new inventions.
Questions and answers about loans for startups
1. How does Qred assess the risk of lending money to start-ups without doing a UC on the individual applicant?
Qred assesses the risk of lending money to startups using credit checks. By focusing on the company's future and plans, they can offer financing without requiring cumbersome historical data.
2. What strategies does Qred offer to make it easier for startups to get funding, especially in terms of avoiding complicated business plans and historical balance sheets and profit and loss reports?
Qred offers a simple application process that only takes 1 minute, with a response within 1 hour and same-day disbursement. Plus, their loans have no start-up fees, lock-in periods or hidden costs, making it easier for start-ups to access funding.
3. What types of collateral do traditional banks typically require to lend to startups, and how does this differ from Qred's approach?
Traditional big banks usually require collateral in the form of real estate or other types of guarantees to provide loans to startups, which differs from Qred's approach, where they instead focus on the company's potential and creditworthiness.
Good luck with your business!
