by Rip Empson
We talk a lot about the startups and companies that receive venture capital and angel funding, but what about the other subset of small businesses that are fundamental to the success of the economy, but may not be on the radar of VCs and angels? These companies, from restaurants and small retailers to salons and florists, may not be high-potential startups like a Google or a Facebook, but they provide services we use on a daily basis and are, therefore, equally as deserving of the necessary capital that would help them get off the ground. Of course, traditionally it’s been very difficult for them to secure bank loans.
Generally speaking, these small businesses likely don’t have traditional finance departments, spend little on finance, keep small cash reserves, and often don’t have the collective experience to complete a 14-item loan package that makes them attractive to lenders. On the flip side, financial institutions can’t afford to spend a lot of time evaluating and working with businesses seeking sub-$100K loans. As a result, banks tend to fall back on personal and consumer credit scores, treating these startups as individual borrowers, rather than evaluating the credit potential of the business itself.