Habla con nosotros:
dealflow@intelectium.com
Habla con nosotros:
dealflow@intelectium.com
Although banks are responsible for a large part of the share of funding allocated to companies, estimated at 70% in Europe, those with experience in startups know that a large part of this share is not allocated to what banks usually consider to be “high-risk” companies.
In recent years, the relationship between banks and startups has started to change. The main Spanish banks, such as Caixabank, BBVA and Sabadell, have created a network of offices specialized in startups and offer products and services specially designed for them.
For the financial evaluation of a company, banks use a methodology called “The 5 Cs of Credit” and which covers (in English): Character, Capacity, Capital, Collateral and Conditions.
1. Character: refers to the entrepreneur's reputation in the market. Is he a serious and responsible person? Have you always paid your debts? The bank seeks specific elements that establish a pattern of seriousness and responsibility.
2. Capacity: relates to the company's ability to generate cash and repay its debts. Startups with low or no income may struggle to obtain funding without personal guarantees.
3. Equity or equity: is another important metric for banks. It indicates the commitment of the owners and the financial stability of the company.
4. Collateral: It is the asset that the entrepreneur can provide as a guarantee. In the case of startups, this is usually a personal guarantee.
5. Conditions: refers to the general environment in which the company operates and the associated risks. The bank assesses whether these risks are sufficiently mitigated.
In addition to the 5 Cs, banks also consider other factors such as cash, debt, business plan and financial documents.
But... When is then the best time to seek bank funding? In a very counterintuitive way, the most appropriate time to try to get bank financing is just when you don't need it. In technology startups, this coincides with the fact that the company has just raised a round of funding with private investors, and therefore its balance sheet is solid, thanks to the positive figure of “net worth” that this round generates in the company's balance sheet.
An entrepreneur can tell us, but what am I going to pay interest for when I don't need debt? We recommend looking at debt, and the interest it generates, not as an expense, but as the cost of insurance... right that we take out insurance when we don't need it yet? Well, with bank debt you have to think exactly the same way...
Obtaining funding from a bank for a startup is not an easy task, but if you can demonstrate that you have a viable business model, clearly growing sales, a solid balance sheet and therefore that there is some certainty of future repayment capacity, you will increase your chances of success. Intelectium has been supporting innovative startups and SMEs for more than 20 years. Contact us and we'll explain how we can help you.
