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Debtor Finance Blog

Unsecured funding for start-ups from a bank? Yeah, right!


I came across an interesting article last week that really grabbed my attention. It grabbed my attention because it was all about a bank lending unsecured to start-up businesses. Just to prove I’m not fibbing – or on the sauce - you can read the article (HERE).

Yes, I know what you’re thinking- it just doesn’t sound right does it? And I agree, my first reaction was to think ‘what a load of bullshit!’ But there it was in black and white, so it must be true, right? Banks would never embellish the truth - would they?

In all seriousness, I’m sure that there are banks that lend to start-ups, unsecured or partially unsecured. And when they do, they deserve a pat on the back for supporting businesses in Australia. But let’s not kid ourselves. In my experience, probably 99% of the time banks demand to be fully secured, whether you’re a start-up or you’ve been established for donkey’s ages.

I’ve been a business owner for almost 17 years now and I still vividly remember my first experience in seeking funding for my start-up business. Back then the people to talk to were still known as Bank Managers. Mine wore a beige short-sleeved business shirt, had slicked back hair styled with Brylcreem, and had an unfortunate skin condition visible on his arms. I can’t recall whether or not a cardigan was part of the picture, but mind you, the meeting was in summer, so that’s probably why. But I digress. From memory I still jumped through plenty of hoops, which is fair enough for a start-up, and I did get the loan. Not bad for a 24 year-old with no business experience. So I suppose I must thank the bank, although in the end they were fully secured thanks to my father’s Personal Guarantee backed by - you guessed it- Real Estate Security. Of course times have changed a lot since then. For one, not too many Relationship Managers wear short-sleeved shirts anymore, perhaps unless they are based in Queensland.

Now, Brylcreem may no longer be in such common use today, but some things haven’t changed all that much. Let’s face it, if you are in business you will probably need funding at some point or another from a bank. So I thought I’d cover off a few things that in my experience are important from the banks’ perspective when it comes time for you to acquire funding.

Real Estate security

As I’ve already mentioned, banks have a love affair with bricks and mortar. So ideally if you own real estate and have a decent loan to value ratio (LVR), that will go a long way towards getting you the funding you’re after.

A track record

A bank is going to want to see your company’s financial statements for at least the last two financial years. Accuracy is critical here, as well as your ability to show that you’ve been making a profit. This is where the importance of having a great accountant comes in; helping ensure that your financial reporting is up to date and that you have no tax arrears.

So those are the two biggies. That’s the critical stuff, but there is still probably going to be a stack of information that the bank requests, and it could easily include;

  • Business plans
  • Flow charts
  • Corporate trees
  • Hierarchical trees
  • Disaster recovery procedures
  • A Succession Plan (not the type regarding who you sell the business to, but the type that clearly outlines what happens if you kick the bucket, and how the bank might get its money back if you do indeed fall off the perch)

And there you have it. That’s my brief take on some of the hoops you may need to jump through to get funding from a bank

It’s probably apt that I once again remind you of Mark Twain’s wise words – A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain.

Oh, and in closing, I’d sincerely love to hear from any start-up business owners who have managed lately to successfully gain unsecured funding from a bank. It all adds to the online conversation…although I have to say I won’t be holding my breath! If you’re one of the lucky ones, email me your thoughts (HERE).

To your week in business…and getting even better at it every day.