Startup companies are not typical. Many have different equipment financing needs than established businesses do. Yet, when it comes to approving equipment financing, traditional lenders tend not to treat startups the same as established companies. Numbers are plugged in to a financial formula and decisions are churned out based on the output. Also, banks typically have a set $25,000 – $50,000 credit limit available to startups. This puts startups and those with a less-than-stellar credit history at a disadvantage, making it less likely or nearly impossible for them to acquire the amount of funding needed to get their businesses off the ground and grow to their potential.
It’s often repeated that more than half of new businesses fail during their first year. According to the Small Business Association (SBA), this isn’t necessarily true. The SBA states that only 30 percent of new businesses fail during their first two years, 50 percent during the first five years and 66 percent during the first 10. The SBA goes on to state that only 25 percent make it to the 15+ years mark.
How would their owners having access to funding change these statistics? With the right planning, funding and flexibility, businesses have a better chance of succeeding. In terms of financing, Global Financial offers equipment financing options to help startups in every stage of development.
When Other Lenders Say No, We Often Says Yes™
For startups, a bank or bank-type financial institution’s rejection of their credit application doesn’t have to be the end of the road. When other “A-type” credit lenders won’t finance an equipment lease, Global Financial & Leasing Services (GFLS) can review the credit package using a type of metric that is different from those used by financial institutions that rely strictly on financial performance and credit history.
Financial performance-based reviews for “A-type” credit considers profit & loss (P&L) statements and balance sheets. However, GFLS is a leading provider in equipment financing for “B-type” and “C-type” credit, so our team relies on a startup’s “story” rather than its P&L statement and balance sheet to make credit decisions. Reviewing “stories” versus accounting reports is how we often say yes, when other financial institutions say no.
Giving “Credit” for a Startup’s “Story”
Working with “B-type” and “C-type” credit applications, we must make decisions based on the best business metrics we can develop for each application without the benefit of perfect credit on the startup applicant’s side. Our credit application types often don’t allow us to build a neatly wrapped package to send to the credit committee. Startup owners with less-than-perfect credit histories still can be approved for equipment financing based on their “story.”
Other “B-type” and “C-type” credit lenders use a scoring method similar to large financial institutions that lend only to “A-type” applicants. This method ranks specific items from the credit report and time in business, etc. and adds up to a final score. The application is approved or rejected based on that score, which defeats the purpose and often ends in rejecting the financing.
Our team understands that scoring applications on the same criteria that banks do will result in the same outcome for the applicant. So instead, we also look at the character of the principal(s), cash flow, collateral and more. We add good old business sense and the best analytical reasoning we can to that information and make a credit decision in 24 to 48 hours.
Typical Credit Limits are Limiting for Startups
Traditional banks that finance equipment for startups typically have a set limit under $50,000. Since many startups’ needs are not typical, this amount can fall short of what is really needed. Much like we review applicants’ “stories” to determine whether to approve funding, also we consider the startup’s need and intended use for funding rather than work from a set limit.
GFLS has more flexibility on how much equipment financing they can approve than most companies that finance startups. We can fund applications up to $1 million dollars. GFLS’s team understands what it takes to be a successful startup. Jim Jenks, founder and CEO, has been a part of four different startups in his career, with GFLS being the most recent successful venture.
If you have a compelling “story”, experience, a business plan and find your startup limited due to restricted lending amounts, see what a difference applying for equipment financing with GFLS makes.