Business loans for start-ups

Why start-ups get rejected by the bank

Maybe you are thinking about starting a business? Or maybe you've just started a new business? Unfortunately, borrowing money from the bank for a new business is not easy. Firstly, the risk is highest in the beginning before the business is up and running and secondly, the amounts are quite small. Banks like low risk and lending high amounts to large companies. It is simply not worth the time for the bank to spend time on start-ups.

What counts as a start-up?

A start-up company means a company that has not yet started a business or has not submitted its first financial statement to the Companies Registration Office. Some banks require even three financial statements for the business not to be considered a start-up. We at Qred think this is wrong, as the first three years of a business are the most difficult. Then you may need temporary injections of capital to grow.

Start your own business loan - A business loan to start your own business

Before you apply for a business loan, you should do your homework. What will your business do, how much money do you need to get started? How much can you pay back per month? You should think this through carefully so that you apply for the right amount and can clearly explain how the loan will be repaid.

What type of loan is best for start-ups?

• A traditional bank loan is best suited when the company is a little further along and there is an established cash flow.
• Business loans from ALMI can work if you have a lot of time and can make a good presentation with a business plan, budget and project plan.
• Business loans from Qred are suitable if you have a temporary need for liquidity. Qred is one of the few providers that offer loans to start-ups.
• Equity is appropriate when there is a high potential for the company's value to increase if the company succeeds, but there is a high risk that it will take longer than planned.

Loans to start-up companies

In our Qred Score, like many other banks and lenders, we assess limited liability companies as something positive. You have entered with a share capital and there are usually several people in the company. You can also add someone who acts as a personal guarantor with the applicant for the loan. This is called a guarantor and our requirements for a personal guarantor are: 

• The person must be a Swedish citizen
• Have an orderly economy
• No debt balance

Payment defaults do not stop us from issuing a loan, but they can be a barrier. You may be offered a lower amount at a slightly higher price before you have made any payments.

Loans to start-up sole traders

As a start-up sole trader (SE), it can be difficult to find the right type of finance. Often you have a slightly smaller business that is seasonal or sensitive in other ways. Banks have traditionally found it difficult to offer lower-rate loans to sole traders. It has simply not been profitable enough. We at Qred think this is wrong and want to help the smallest and start-ups with finance. We do this by offering smaller loans and in this way we get to know each other and can increase the loan in the long run.

Another option is to use our . This saves you from private expenses and complicated bookkeeping. Everything is collected on one invoice, which is perfect for everyday expenses and purchases.

Loans to start-up companies

As with any other loan issued by Qred, it is advantageous if you can get one or two more people to act as personal guarantors for the loan. In other words, you are personally liable for the loan. If you and the other person are in good financial shape, this will usually make it easier to pay both the amount of the loan and the fee for the loan.

Loans to start-up limited partnerships

That said, Qred can help all types of companies with financing. We very much welcome the fact that there are two people sharing the responsibility between a limited partner and a general partner.

Credit rating for start-ups

When you apply for credit for a start-up company, a credit check is often carried out on the company. It is very rare for the credit rating to be particularly high, as the credit reference agencies have no history on which to base their assessment. As a business, you earn a high credit rating by consistently making stable and predictable sales and profits and avoiding any kind of payment history.

At Qred, we have our own Qred score, which takes into account the business idea and the people behind the company. Call our officers for a professional assessment and get a quick credit decision.

Almost every day someone calls Qred and asks if they can borrow to finance their start-up company. The first thing we ask is whether the company is registered with the Swedish Companies Registration Office (i.e. that there is a valid organization number). We then try to find out where the business is in its development and what its needs are. Business loans are an important part of financing, but there are often multiple sources of funding that you should consider in order to put together a solution for your business that can help you meet both short-term and long-term needs.

There are some obvious questions you need to ask yourself before you start raising start-up funding, namely:

• How much funding does the company need?
• When can the company start paying back those who invested in or borrowed from the company?
• Do you need to borrow money to start your business?
• If so, how much?
• What repayment period is realistic?
• Can you defer investments so that you make some investments later - after you have had the opportunity to build a good track record or generate enough profit to cover at least some of the costs yourself?

Once you have an idea of your needs, there are some options you should consider to get the capital you need to get started:

1. Your own resources

Many entrepreneurs don't want to mix their personal finances with their business finances. This is a good idea, but in the beginning you will have the best insight into the business idea and its potential, and therefore you are the best judge of risk. Therefore, you should always be prepared to invest some of your own money to get started. It is also a strong signal to banks and other lenders that you believe in your business idea. Don't forget that 99% of companies are financed with their own funds!

2. Traditional sources

The traditional major Swedish banks rarely lend money to small businesses, especially start-ups, unless the owners already have a long track record and a strong personal relationship with the bank. They often require collateral such as real estate or a personal guarantee. Typically, a traditional bank loan can be set up with a long repayment period of 3-5 years, but it often requires a long process with high collateral requirements and, in some cases, expensive set-up fees.

3. factoring

Another option is to sell your invoices, which is now often used as an alternative or complement to traditional business loans. Factoring works well for small amounts and short periods of time and is usually quick and easy, but usually more expensive than business loans.

4. Alternative business loans via digital channels

The fastest option is now a digital service that expanded in the wake of the financial crisis, when banks largely stopped lending to small businesses altogether. These digital players usually have lower costs than the big banks and have simplified the application process so that it can be completed in minutes online. Traditional factors such as credit rating and business performance still matter, but new social factors such as the quality of a website, online traffic, social media presence and ratings on comparison websites are combined to get a better picture of the business and its potential to repay the loan.

What does it take to get a loan application approved? Typically, these alternative lenders will want to see a well-managed personal financial situation, to understand the business idea, to understand why the loan is necessary and how it will enhance the business. A good credit rating (no debt balance, no payment defaults and stable income) increases your chances of getting a loan.

3 ways to finance your startup

Starting your own business is easy, but getting a profitable business up and running without capital can be even more difficult. After all, marketing, machinery, premises and employees cost a lot of money, but are crucial to the future of the business.      

So, in order to grow your startup, you will need to get capital into the business. Fortunately, there are a variety of funding options to explore if you are unable to invest your own money.

Here are three ways to fund your startup and their advantages and disadvantages.

1. Business loans

Business loans are the most common form of business financing today. With a business loan, companies can borrow lump sums that they can then use for optional investments, such as machinery, premises or employee salaries, to grow their business.

The loan is repaid according to a fixed repayment schedule, either daily, weekly or monthly, together with interest and other charges.

There are generally two different types of business loans:

• Secured.
  Thistype of loan requires a "collateral" such as a business mortgage or property. The interest rate for this loan is usually lower, but at the same time the loan requires a lot of time-consuming administrative work.

• Unsecured.
  ‍In this case,collateral is not always a requirement, but the most important thing is that the company and its representatives have a good ability to pay. The application is made digitally and the money can be paid out significantly faster compared to secured loans.

Business loan is really just another word for business credit.

Pros and cons of business loans

• Benefits:
  A business loan allows you to get capital into your business quickly and repay at a pace that suits you. In addition, you can apply for a business loan without UC to avoid strain on your and/or your company's credit rating.
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• Disadvantages:
  Not all lenders offer loans to new businesses. This is because many startups have not yet reached a stable turnover. If the company has shaky finances and low income, the risk for the lender increases, which can lead to a high interest rate or rejection of the application. Qred tries to find solutions to help even start-ups.
  

2. venture capital

Venture capital is a popular form of investment whereby individuals or companies invest money in start-up businesses. In exchange for your capital, they get a share of the company, which means they will share in future profits.

As the name suggests, this is a high risk form of investment. Therefore, it is mainly suitable for start-up companies with high growth potential in the near future. Statistics from Growth Analysis show that over SEK 3.3 billion was invested in Swedish portfolio companies in 2018, which is an increase of 43% compared to the previous year.

There are many platforms where companies looking for venture capital can find suitable investors, such as Connect Sweden and ALMI Invest. You can also find investors in your own personal network or with the help of an incubator.  

Advantages and disadvantages of venture capital

• Benefits:
  You get a large amount of money into the company that you can use to drive the business forward. If you can find an investor with good business skills, you can also get a good partner who wants the company to develop in the right direction.
  ‍
• Disadvantages:
  You give away part of your business, which means you can no longer make decisions yourself. Read up on venture capital if you are interested in this funding option.
  

3. crowdfunding

Crowdfunding - or mass financing - involves ordinary individuals investing a small amount of money each to finance a business or project they believe in. The concept originated in the US, but has become a global phenomenon in recent years.

According to P2pmarketdata.com, Sweden ranks 20th in the list of top countries in crowdfunding with an annual growth rate of 36.58%.

In return for their money, investors may receive a reward, such as priority access to the service or product they invested in. In some cases, they may also receive a share of the company's profits, which works in the same way as venture capital.

When it comes to crowdfunding, you have many different platforms to explore, but two of the most popular are Kickstarter and FundedByMe.

Advantages and disadvantages of crowdfunding

• Benefits:
  If your start-up is developing innovative products or services, crowdfunding can be a good option for raising capital. It can also be a good way to market your business to the right audience.
  ‍
• Disadvantages:
  Many platforms may charge a commission on the contributions raised by the project. Crowdfunding is not suitable for all businesses, but mainly for those involved in developing new inventions.

Questions and answers on business loans for start-ups

1. How does Qred assess the risk of lending money to start-ups without doing a UC on the individual applicant?

Qred assesses the risk of lending money to start-ups by using Creditsafe for credit checks instead of UC on individuals. By focusing on the company's future and plans, they are able to offer financing without complicated historical data requirements.

2. What strategies does Qred offer to facilitate financing for start-ups, especially in terms of avoiding complicated business plans and historical balance sheets and profit and loss reports?

Qred offers a simple application process that takes only 1 minute, with an answer within 1 hour and disbursement on the same day. In addition, their loans have no start-up fee, lock-in period or hidden costs, making it easier for start-ups to access funding.

3. What types of collateral are usually required by traditional banks to grant loans to start-ups, and how does this differ from Qred's approach?

Traditional big banks usually require collateral such as real estate or other types of guarantees to grant loans to start-ups, which differs from Qred's approach where they instead focus on the company's potential and creditworthiness.

4. How does Qred assess potential start-ups' creditworthiness and business idea when offering financing, and what factors are considered in addition to traditional credit ratings?

Qred assesses the creditworthiness of potential start-ups through a holistic assessment that includes the business idea and the people behind the company, in addition to traditional credit ratings. This allows them to offer financing even to companies with less stable financial histories.

5. What are the main advantages and disadvantages of alternative financing options such as factoring, venture capital and crowdfunding compared to traditional bank loans for start-ups?

The main advantages and disadvantages of alternative financing options such as factoring, venture capital and crowdfunding compared to traditional bank loans for start-ups lie in the simplicity of the application process, flexibility of terms and the possibility of faster disbursement, but at the same time may be associated with higher costs and require some business ownership.

6.

Yes, at Qred Bank you can borrow money to start your own business, provided you have a registered business and meet our basic requirements. Our business loans are designed to support small business owners and can help with start-up costs, whether you're starting a sole trader or a limited company. However, it is more difficult to grant loans to start-ups, so it's best to have a few months' history before you apply.

Good luck with the company!