Financing for New Businesses: Navigating the Challenges of the First Two Years

Starting a new business is an exciting endeavor, but it can also be challenging, especially when it comes to financing. Banks and other traditional lenders can be hesitant to lend money to businesses under two years old, as these companies are often viewed as higher-risk investments. However, plenty of options remain available for entrepreneurs who need financing to support early-stage businesses.

Short on time? TLDR at the bottom.

Why is financing complex for businesses less than two years old?

Banks and other lenders are generally more risk-averse when lending money to new businesses. Businesses under two years old haven’t had the time to solidify a positive financial track record, making it difficult for lenders to assess their creditworthiness. Also, many startups have limited assets or collateral, making it even more challenging to secure financing.

What are some solutions for financing a new business?

1. Talk to your Banker: If your Bank prioritizes relationship banking as we do at Coastal, your Banker will provide personalized banking service and may have some solutions for you. If this isn’t your bank’s approach, read our blog about relationship banking and see if it’s a good fit for your business!
2. Reach out to SCORE: Recently, in a blog; we discussed how SCORE is a secret weapon for small business success. SCORE provides expert advice and educational workshops to help for-profit and nonprofit businesses plan, launch, manage, and grow. In March 2023, they held a class that went in-depth about financing for your small business, and they have many more workshops available.
3. Consider alternative lenders: Alternative lenders, such as online lenders and peer-to-peer lending platforms, are often more willing to lend money to new businesses than traditional banks. These lenders use different criteria to assess creditworthiness, such as cash flow and business plan viability, making them more accessible to startups.
4. Explore government programs: Many governments offer programs to help new businesses get off the ground. These programs may provide loans, grants, or other financial assistance to qualifying businesses.
5. Seek out investors: Angel investors and venture capitalists are always looking for promising startups to invest in. These investors provide funding in exchange for a share of the company, which can be a great way to secure financing without taking on debt.
6. Utilize crowdfunding: Crowdfunding platforms, such as Kickstarter and Indiegogo, allow entrepreneurs to raise money from a large number of individuals in exchange for rewards or equity in the company. This can be a great way to generate buzz for your business while also securing the financing you need to get off the ground.

We understand that financing a new business can be challenging. Start by making sure you have everything you need before applying for a loan, and give your Banker a call if you’d like to get more information!

TLDR: Since businesses that are less than two years old haven’t had the time to solidify a positive financial track record, Banks and other traditional lenders may be hesitant to lend money because they’re seen as higher-risk investments. However, there are options available if your business needs financing, including talking to your Banker, reaching out to SCORE for expert advice, considering alternative lenders such as online lenders and peer-to-peer lending platforms, exploring government programs, seeking out investors, and utilizing crowdfunding platforms. Make sure you have everything you need before applying for a loan, and give your Banker a call if you’d like to get more information.