Startup life: Things people don’t tell you about raising capital
Today’s climate has been very difficult for startups raising capital. While Silicon Valley culture seems so triumphant and enormous, it’s hard to imagine any truly great startup being denied funding.
It’s also true that the “boys club” of these elitist investing resources is really reserved for startups straight out of esteemed institutions like Stanford or Princeton, and is radically based on “who you know.”
This makes it challenging for new startups out of the gate who don’t have those connections to forge the right introductions and inroads to access that capital.
Venture capital is also not of interest to many founders. While access to potentially millions of dollars sounds tempting, it comes at a cost: and that’s the cost of sacrificing equity (as venture capitalists require a significant equity stake in exchange for cash).
Many startups would rather bootstrap their way to the top than dilute their shares by depending on outside investors.
So, many do – rather than focusing their efforts on raising capital and forging investor contacts, they focus their efforts on making it work with what they do have: their savings accounts, lines of credit, and “friends, family, and fools” money (the seed money they raise from those who know them personally).
Even with these ‘backup options,’ the funding is still typically scant. While it can range dramatically, especially for tech startups or those that require a significant amount of research and development.
Fundera estimates that the average startup requires at least $10,000 in startup funding to get up and running. So, many startup founders decide to take to the banks to take out a loan.
Loans are sound options as opposed to solely bootstrapping: it’s the sweet spot that provides both access to capital and full ownership of the business, without sacrificing equity to investors. Of course, businesses have to repay the loans.
But, historically, many startups have shuttered or gone into bankruptcy, making banks more hesitant than ever to lend out their customers’ hard-earned capital for loans.
It’s especially difficult for startups. Because the nature of a startup is in its newness, banks don’t have much information to go off of regarding the startup’s past accounting books, profits, or how the founders handle money in a business-sense.
Think about it this way: you need to access the funds to open a manufacturing plant for your new drone business. You can’t start to sell the drones until you can actually manufacture them at scale.
And because you haven’t actually begun with business as usual, you can’t prove to a bank that you can keep a business afloat and sustain a proper profit margin.
What are banks to do? Well, they often look to the founders’ personal finance history (and that’s if they want to give it a second look without denying the startup from the get-go).
Since the founders are at the ‘helm’ of the startup ship, a second-best option is to assess the type of people the founders are, and how they’ve handled money historically. This is mainly done through credit scores.
According to The Balance, even if a founder has a good credit score, this may not be enough. “The problem may be as little as one negative rating on your credit report, but that may be all it takes for a bank to say no,” wrote Jean Murray. Any score under 800 almost results in a loan denial.
Other Options For Raising Capital
These circumstances have left many founders with no other funding options, and with the economic pressure of the pandemic, has led many startups to pause or close down their businesses completely.
This has created a significant need for other business options. So, entrepreneurs such as Oz Konar have noticed the problem and risen to the challenge.
Konar began a business, ‘Business Lending Blueprint,’ which provides two opportunities: for one, startups have access to business loan brokers who can help them with another form of capital and financing if the major banks or investors aren’t sound options.
The second is for those looking for opportunities to start their own business, as Business Lending Blueprint actually trains brokers.
This form of alternative lending is, in many cases, the only hope that small business owners have when seeking funding to get their businesses off the ground – a statement made all the more true as Konar noted that a whopping 80% of small businesses are denied loans from banks.
Whether you’re a startup founder looking for more ways to access capital, or a hopeful entrepreneur in search of a new venture that can help and give back to the small business community, Business Lending Blueprint can be helpful.
Konar’s team has successfully helped business loan brokers scale their businesses to six and even seven figures, while also helping the businesses receiving the loans scale to similar levels.