An article that we liked does a good job of laying out some basic aspects of the ever important credit profile that a lender uses to assess the risk of a potential borrower and why it is so difficult for a startup to find funding with a bank or more traditional lender.
The article discusses the “4 C’s of Credit”, which they us as collateral, capital, capacity and character. Obviously, there are nuances and different banks will have other data points they look at but this does form the basis of the important factors that a bank considers.
A bank is going to look at a startup and see a thin balance sheet (little collateral), low working capital balances and very little history, if any, of revenue generation. The founder(s) may or may not have good personal credit but a bank is unlikely to approve a loan based only on a personal guarantee.
Overcoming these obstacles can be tricky but you need to start with a solid, well thought out and well-presented business plan and be able to tell your story with the passion that led you to start the business in the first place. You will likely have more luck with an alternative lender or if you do have good credit, a personal loan that you can use to jump start the business and get some history and revenue generation under your belt.
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