Start-ups and banks

Many start-up companies are stuck when it comes to bank financing. Why is this? Simple, they have no cashflow history. They have no earnings history.

So the simplest way to get a loan from a bank if you have a start-up company is by getting long-term contracts signed and clear.

This works like this:

You have produced a new beer product. You walk around to local pubs and they find your idea very interesting and sign themselfs up for 2-3 year lease or purchase agreements. Why agreements? Simple, with agreements you now have a history (all though a future history of revenue). The bank will like this. With these agreements you have a proven revenue stream 2-3 year into the future. You also have your customers creditworthiness working to your advantage (a start-up company is per automatic not creditworthy).

The next step you need to understand in order to get a bank to give you money to deliver your product/service is how much you will earn on the agreements. Banks will lend only a certain percentage (75% in Sweden) on the annual earnings divided by the cap rate you are given.

So if you make $100,000 annually in earnings (after fixed expenses and before taxes) the bank would give you $75,000 in Sweden divided by a cap rate. In this case we say the bank will give you a fixed 10% cap rate on $75,000. This would give you $750,000 that you could use to finance your company and get things moving (assuming an interest loan).

Sounds overly simplified and unrealistic, but test it before you dismiss it, will you. I think you owe it yourself. The worst thing that could happen to you is getting a "no" from every bank in the world. How horrible can that be? There is always hard money lenders (private lenders) if the traditional banks should say no (which would be very strange by the way).