A good idea alone does not make a successful business. Business concepts can only be implemented with sufficient financial resources. In many cases, this also includes outside capital in the form of loans. Most start-ups therefore have to visit a bank sooner or later as part of the start-up process. However, the granting of loans can also pose hurdles for young entrepreneurs. This makes it all the more important to prepare well for the appointment. We have compiled some important tips from our experience as a development bank to ensure that the financing discussion at the bank is a success.
Rating and creditworthiness
The core of a loan is the so-called rating. This procedure forms an essential basis for the bank's credit decision and the conditions under which a credit offer is made. For the rating, the bank analyses information about the borrower, especially the value of the collateral offered and the creditworthiness. The latter includes in particular the past and present economic performance and the future viability of the company. Those with a good credit rating and stable collateral have the best prospects of being granted a loan at favourable conditions.
Rating for start-ups
In the case of newly founded companies, there is naturally a lack of historical data, such as annual financial statements, with which a company valuation would be possible. The banks therefore resort to special rating procedures. In addition to the collateral already mentioned, qualitative factors play a role - especially the start-up concept. For the banks, it is an important indication of how good the chances are of getting back the money lent. The concept should not only explain the business idea conclusively, but also include an analysis of the market and competitive situation as well as a forecast of expected earnings. A comprehensible liquidity and capital requirement plan is also indispensable. Understandable and consistent presentations lead to the goal. If the bank can understand the concept without many questions, it speeds up its review.
Realistic instead of exaggerated
Even if you have a lot of confidence in your business idea, the business concept should be realistic and not raise exaggerated expectations. First of all, the bank's specialists are quick to recognise over-optimistic presentations. And secondly, the relationship of trust with the bank suffers if, after a certain period of time, borrowers have to present figures that are significantly worse than those forecast.
The external impression
In addition to the plausibility of the content, it is important to present the information contained in the concept in an appealing and addressee-friendly way. Too large a volume can be off-putting for readers; ten to fifteen pages are usually enough. A table of contents at the beginning, an introductory summary and an appendix containing more extensive tables have also proven to be useful. However, it is not only the concept that should make a positive external impression, but also the founders themselves in personal discussions with the bank. Only those who can explain their concept orally well and without contradictions, who create a reliable impression and ideally already have industry experience and qualifications will help their loan application succeed. It is also advisable to find out about financing options beforehand, including public subsidies. An overview of the LfA Förderbank Bayern's offers for start-ups is available at http://www.lfa.de/gruendung.
The bank's market assessment also plays a decisive role in the rating. The respective credit specialist assesses the future viability of the product or service, the competitive situation in the industry and the discernible risks of the project. In principle, founders should be prepared for the fact that banks often tend to be rather cautious in their rating, even if the assessment of the start-up project is positive. However, it is worth persevering.
Looking to the future
If a loan is approved, as the business progresses the above factors gradually take a back seat to the historical data mentioned at the beginning, until finally, after five years, the company is assessed by the bank as a "regular" corporate and commercial customer - a confirmation that it has established itself in the market!
Comprehensive advisory services
If you have any questions about financing, the LfA supports start-ups with individual advisory services. Interested parties can contact the LfA funding advisory service directly. The exchange with the funding experts then takes place either in person, by telephone or by video conference. In cooperation with regional partners, such as the local chambers of industry and commerce, LfA also offers regular advisory days throughout Bavaria.
LfA funding advice