Start-up enterprise owners will approach banks with high hopes of getting funded after winning contracts to supply goods or services only to be taken aback when the banks demand fifty percent own contribution. The contracts doesn't mean much in the hands of a start-up enterprise because without any track record the bank have no certainty the small enterprise will successfully complete the project, get paid and be able to service the bank loan.
It is open secret the banks don't lend money to start-up enterprises. The banks claim to focus on three things when a small business loan application is under consideration, namely: the applicant, the business concept and the market, but they often refuse to finance viable business concepts in growth markets because the applicant failed to meet the basic criteria: the fice C's of credit test.
Character: The applicant's personal reputation.
Credit: The credit history of the applicant.
Capacity: The applicant's ability to service the debt rather than the strengh of the business's cash flow.
Capital: The size of the applicant's own capital at risk in the venture.
Collateral: Collateral reduces the banks risks as the source of repayment in the worst case scenario and proves the applicant's commitment to the success of the venture becuase of what they stand to lose.
Small business owners who falls in the unlucky category that fails the five C's of credit should consider the tried and tested sources of capital for starp up enterprises. "Your startting capital which lets you give up your day job and start working on the idea, should come from three sources: friends, family and fools." Herman Hauser, Amadeus Capital.
