Financing a start-up: with credit to own business

Only very few founders are able to finance the start-up of their own company entirely from their own resources. The start-up costs and initial investments need to be met – if the equity capital is not sufficient, a large company loan often comes into play. But its application is often made difficult, especially for young founders of companies.

Setting up a business made easy? This does not always apply

Fewer and fewer people start their own business. Whereas in 2010, around 941.000 start-ups were registered in germany, in the past year 2017 there were only about 557.000. Given the often high start-up and investment costs, as well as the equally high demands placed on potential borrowers by banks, this comes as no surprise. Especially with an uncertain business plan, little collateral and thus an uncertain company future, it is difficult for founders to obtain a suitable loan to cover the resulting costs.

If you have just founded your company or are in the middle of the start-up phase, you will certainly have already made some investments. In the first business year, mainly the so-called start-up costs are incurred. This includes, for example, consulting costs for a special start-up consultant who can support you on your way to self-employment or freelancing and provide you with helpful information. But also costs for further education, founder trainings or visits to trade fairs in order to establish contacts and acquire important knowledge are part of the first company expenses. Even the one-off costs, such as the fees for registering your business, are often in the range that cannot be paid for by the equity you have saved up.

Added to this is the calculation of working capital requirements. This includes, for example, the costs for your staff, the rent for the premises, advertising and insurance. The company's own fleet of vehicles – if necessary for your company – also needs to be paid for. Operating costs should be calculated for a period of three months or longer when starting a business. The final bill must then be mastered, in case of doubt even without income. A new company often needs time to generate profits and regular income. For many founders there seems to be only the way out credit. However, this is easier said than done, because freelance founders in particular are considered a potential risk factor for banks – and rarely receive the desired loan without difficulty.

Tip: if you have already applied for a loan from a bank and been rejected, it is worth trying again at another bank. Because not every financial institution sees the company foundation as a "C".O.-criterion" for a loan. The supposed exclusion criteria can be weighted quite differently from bank to bank.

Financing by loan: difficult for founders, but not impossible

As a rule, a company start-up requires a loan between 20.000 and 40.000 euro requested. Unfortunately, it is not that easy to go to the bank with the calculated business plan, submit the application and then obtain the required loan. Founders are considered a risk group anyway, as the company's future cannot be clearly predicted. If there are further C.O.-criteria such as a frequently overdrawn current account added, there is hardly a chance to get the desired loan. A negative SCHUFA report is also a clear exclusion criterion for banks. Founders with payment difficulties in other matters will therefore hardly find a suitable loan.

Another difficulty: most banks require self-employed persons to inspect their previous income tax returns – at least the last two. These are logically not yet available for founders. Likewise, with a high loan amount such as 40.000 euros of insight into the current business analysis are required. If the bank assesses this negatively or if (as in the case of founders) there is insufficient evidence, the loan application is rejected.

But there is a way out: self-employed and freelancers can benefit from special offers if they want to take out a loan. Some credit institutions offer special loans for these occupational groups. Again, proof of income will help you get a loan.

A well-structured business plan helps with obtaining a loan

Founders do not have to look down the tube: A well-structured business plan and a concrete business objective are a good start for obtaining the start-up loan after all. The business plan should describe the start-up idea in as much detail as possible. If the idea is convincing, this is already a good basis for obtaining a loan. It is also important to list the expected operating costs so that the banks can understand the financing requirements. For you, this list also offers an advantage, as you can better calculate the costs you will incur. Finally, the personal impression also decides on a yes or no when granting a loan.

Tip: start-up advisors can not only help you to draw up a business plan – they are also there to prepare you for the interview in a structured way. Typical questions that the banks will ask, they can tell you as well as potential stumbling blocks. Of course, the founding advisors require a fee for their part. Therefore, you should weigh the costs and benefits of these freelance consultants in advance.

Alternative to the classic credit: special loans for founders or guarantee

If you are not successful despite your good preparation and do not receive a loan, there is an alternative to the classic bank loans: subsidies and loans for founders. Here, too, everything stands or falls with a good business plan. In germany, for example, kfw grants special start-up loans that are available both for the planned establishment of a new company and for recently founded start-up companies. However, the point of contact for obtaining a kfw loan is still a public bank. This takes your data and forwards the request to the kfw. An advantage for founders of kfw loans is the liability, which kfw assumes to a large extent. If payment difficulties occur, this is often less dramatic than with "typical" loans from banks.

Another way out in case of rejected credit requests can be to provide additional security. For founders, this is usually a guarantor. This second borrower also signs the founder's loan application and steps in if the first borrower has payment difficulties. However, he must be checked himself so that the bank accepts him as a second borrower. Thus likewise a negative SCHUFA entry or a missing, regular income is valid here as exclusion criterion.