Star up businesses are known for having robust products, lean business models, and agile thinking. However, finding start up financing is not always the easiest endeavor. For many, traditional bank loans are not in the picture. So how do businesses get start up financing without paying out of pocket?

Why Banks Do Not Provide Start Up Financing

There are many reasons why banks do not like to offer start up financing. First, start ups are considered to be high risk investments. Most start ups do not make it past the fifth year of business. As most bank loans have terms of five or more years, banks do not see a full return on the financing. Second, most start ups require more financing than most banks can give to new businesses. Local branches and even national lenders have limits on the amount of funding they can offer new businesses. Third, most banks do not understand start up businesses. Banks are fairly removed from the private sector. With the volume of clients they have, they really do not have time to understand start up businesses, their goals, or their needs. As such, businesses which do not fall into terms which are easy to understand are considered risks, and therefore get moved to the first reason why they do not get approved for start up financing.

Why Start Ups Do Not Want Bank Loans

Start ups usually avoid bank loans very similar reasons, but from the other side of the fence. Banks do not attempt to understand start ups. In the best case scenarios, they try to railroad them into ill-fitting funding programs. Another reason start ups do not want bank loans is everything tied to traditional financing. Start ups need flexible financing that allows for rapid growth. Traditional bank loans are far from flexible. Bank loans lock start ups into rigid payment schedules and pile debt onto the balance sheets. If a business does very well and tries to repay the balance on the start up financing ahead of schedule, hefty prepayment penalties are triggered.

The Solution for Start Ups

Instead of resigning themselves to bank loans, or paying out of pocket, start ups are using asset based lending. Asset based lending is a revolving line of credit structured around the value of assets such as vehicles, equipment, receivables, inventory, and more. Asset based lending is debt-free, and promotes growth with financing that increases along with the business.

At CNH Finance, we specialize in asset based solutions for start up. Contact our offices today to learn more.