Why Are Start-ups Not Getting Funding?

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Regardless of the industry, all start-ups are going to require some amount of capital to get their project up and running. Traditionally, entrepreneurs have sought financial assistance from high street banks, though over recent years, the banking sector has become ever more reluctant to part with their cash and back small companies just starting out.

Why exactly has this unwillingness to invest in start-ups come about? And if you’re a small business owner with a vision for success but without the resources to achieve it, what other options are open to you? This informative blog should shine a light on these troublesome questions for the little guy looking to take their first steps into the world of business.

Common reasons for funding rejection

There are any number of reasons why a bank might refuse to provide you with the funding necessary to get your idea off the ground, and they’re becoming ever more creative in their reasoning when it comes to sitting down and talking it out with a disappointed applicant. However, the factors will contribute to their decision most commonly fall into the following categories:

  • Too much risk. Banks generally look for the four Cs when assessing whether to approve a business loan: capital, collateral, capacity and character. A new business is unlikely to be able to provide much in the way of assets or historical evidence to prove their worthiness, so the most common reason for rejection is simply a fear that the money will never come back.
  • Lack of preparation. In order to stand any chance of locking down a business loan, it’s vital that you approach your application well-versed in the merits of your own vision and confident in challenges you will inevitably face. Nothing says a safe investment like an airtight business plan, and failing to produce one is a sure-fire road to rejection.
  • Volatile market. If there’s one thing the banking industry loves, it’s a safe bet. If you’re planning to enter a market in flux or one that could feasibly be disrupted in the near future, either by technological developments, international politics or another reason entirely, it’s likely the funding won’t materialise.
  • Unwilling to invest. A bank may often ask applicants to match the funding they provide with collateral of their own. This can take the form of an up-front investment, although such a scenario is unlikely if you’re looking to them for funding in the first place, so staking any assets you have may be required. A reluctance to do so will not engender confidence.

Alternative sources of funding

If you’re running into a brick wall when going down the standard avenues of financing, there are plenty of alternatives you can try out. These include:

  • P2P lending. Rather than going to a formal institution such as a bank, you can reach out to private investors via a peer-to-peer platform, who might be more open to the idea of lending you the required capital in exchange for a negotiated interest rate.
  • Similar to P2P lending in that it utilises an online platform to locate investors from unlikely places, crowdfunding ranges from friends and family to fans or individuals with like-minded interests, and can generate significant sums from a multitude of smaller sources.
  • Invoice financing. Much of business depends on waiting for invoices to be paid, which can often be subject to lengthy delays. If you need capital immediately to take the next step, you can sell the value of your outstanding invoices to a financier, who will front you the money in exchange for a small percentage of the total amount.