I’ve written before about the pain caused by “Uncustomers” – people who will take up a lot of your time but never buy anything.
Recently I’ve seen a similar problem with banks.
A few companies I know have talked to their banks about finance, and the banks are very keen to promote their business lending products – from overdrafts to term loans, from invoice factoring to asset finance. Some banks have relationship managers actively encouraging customers to explore these products, and hardly a day goes by at the moment when I don’t get a mailshot or e-mail from funding circle and other lending platforms.
I know a few young tech companies have been tempted to pursue these options. The application form is often long and complex to fill in, then it asks for many additional documents which take time to assemble. Once sent to the bank (or alternative lender), they often come back with more questions, and then they take time to process the application. Often this process takes a few months from start to end, and most of the companies I am hearing from are getting a “No” back.
The reasons that are given are usually some variation of:
- Your company is making/accumulating a loss
- Your company doesn’t have <required threshold> of revenue
- You don’t have enough trading history for us to lend
- We need a personal guarantee from all the directors (or in some cases even all shareholders) for the finance*
* This isn’t actually a “no” – but try getting your investor director or a director appointed by Scottish Investment Bank to agree to be personally liable for your businesses debt…
The thing I find really frustrating is how simple these responses are – this isn’t a complex scoring process that no-one can predict the outcome of! Why aren’t lenders asking these simple questions up-front before wasting entrepreneurs time? It’s not just the time spent on the application, it’s the opportunity cost of the months spent not pursuing other options in the expectation that bank finance will be forthcoming.
I’d love to see banks doing more to support entrepreneurial young tech companies, but I understand that might not fit their risk profile. Where they aren’t going to lend, the best thing banks can do is get to “no” as fast as possible, so as not to waste entrepreneurs precious time.