THE 360° OF FUNDRAISING - Workshop - HOW TO UNLOCK BANKING FINANCING SUPPORT - BCEE

1

LHOFT :THE 360° OF FUNDRAISING: HOW TO UNLOCK BANKING FINANCING SUPPORT - Workshop

Corporate Banking 10/02/2021

SPUERKEESS.LU

| SPUERKEESS.LU

2

HOW TO UNLOCK BANKING FINANCING SUPPORT • Why do banks say “No” to startup loans?

• Why are startups risky for banks?

• The best ways to get a startup business loan

| SPUERKEESS.LU

Why do banks say “No” to startup loans?

• Banks are typically risk adverse; • It is not a bank’s function to finance unsafe business models; • It is therefore very difficult for a new business to get a loan from a bank; • New businesses are in fact the riskiest loans of any that a bank might encounter. => So understandably banks are prudent about loans for startup companies.

| SPUERKEESS.LU

3

Why are startups risky for banks ? (1)

4

To see why startup companies are risky for banks, let’s have a look at the 4 C’s of credit: • Capital: generally speaking, a new startup has often only few business assets or no business assets at all; • Collateral: a startup has generally little collateral unless it can use personal assets of the business owners or has co-signers with assets to pledge; • Capacity: there is no track record to show that the new company has the capacity to generate enough money to pay back the loan; • Character: there is no credit history available which can be used by the bank to assess. | SPUERKEESS.LU

Why are startups risky for banks ? (2)

5

Furthermore ….

• Lack of experience: In professional businesses, it's common for banks to deny a startup loan to someone who cannot provide proof of a long term working experience; • Lack of management: Banks may not be comfortable with a new startup that doesn't have a strong, experienced management team to add their help to boost the business; • Lack of customer base: It’s one of those "Catch-22" situations: you can't get a loan unless you have customers, but you can't start your business and get customers without the loan.

| SPUERKEESS.LU

The best ways to get a startup business loan (1) •

One of the best ways to get a startup business loan from a bank is to provide a strong business plan to answer all the questions a bank might ask and the objections that might be raised.

•

Show how you plan to contribute capital to the business. o What are you contributing to the business yourself? o What amount of money have you already invested?

•

Show where your collateral will come from and provide your own and your co-signers’ credit records;

•

Show your management expertise as well as the one of your advisors and executives that have guided and will guide the business quickly to profitability.

•

Include detailed spreadsheets to demonstrate when your business will have a positive cash flow;

•

Show your experience with similar businesses, or show you have an experienced management team behind you;

•

Show the bank that you have already convinced BA or VC to invest in your company. The bank will be reassured if there have already been a couple of equity rounds. | SPUERKEESS.LU

6

The best ways to get a startup business loan (2) There are other ways to improve the quality of your loan application: • Contact Luxinnovation : they can help you determine what suits you best and provide the right support (state aids that can be pledged by the bank); • Contact the mutual insurance companies: (MPME or Mutualité de cautionnement). They do not directly lend money, but they give guarantees to a certain amount of the loan ; • Contact SNCI : SNCI is a public-law banking institution specialized in medium and long term financing of Luxembourg based companies. The bank can sometimes share the risk with SNCI; • Ask your bank about the European Guarantee Framework programmes InvestEU (which will be launched 2021/2022). | SPUERKEESS.LU

7

8

Thank you!

1, Place de Metz 2954 Luxembourg

4015-1

SPUERKEESS.LU

Copying, distributing or any other unauthorised use of the content of this presentation without the express prior written consent of Spuerkeess is strictly prohibited. Neither this presentation nor anything in it shall form the basis of any agreement or commitment. This presentation is not, and nothing in it should be construed as an individual or general offer, invitation or recommendation.

| SPUERKEESS.LU