Entrepreneurs: the main pitfalls regarding banking (and how to overcome them)
As an entrepreneur, you will certainly encounter some cash flow difficulties when starting your business. These may relate to your financing needs to purchase new equipment, to hire more employees, for unexpected expenses, delayed payment of your customers, etc. We have listed below the five main disadvantages that small businesses have with respect to their means of financing from banks to counter these hazards and we will explain how to get around them.
Personal funds are not sufficient
Small contractors prefer the greater contractual stability provided by short and long-term loans. Most of the time, managers of small and medium-sized enterprises as well as founders of start-ups have to use their personal funds as collateral to obtain a loan from banks. When they offer a loan, credit institutions ask for security, usually a personal guarantee or a mortgage on real estate. The value of the security required for microloans often exceeds the amount of the loan itself (up to 150% in some countries).
Inflexible credits and overdrafts
The limits on the amounts of credit cards issued by banks cannot be changed easily. If employees need to use their card and make a large expenditure, it is still complicated for them to have to call their bank to make the request. There are several short-term credit solutions available to help small businesses cover their expenses, such as overdraft, discount and overdraft facilities. However, these financial tools have many drawbacks, especially on the financial side. They are often very expensive and banks charge them with commissions and interest rates.
On the other hand, a bank loan is a single-use product, used for a specific expense in “one go”. Generally, overdrafts cannot be activated and then deactivated, and traditional banks charge high fees if the business exceeds the overdraft limit. At the same time, most newer banks do not offer credit cards and overdrafts are not allowed, so purchases made below the balance will not be made.
A business bank account may not be enough
Expenses are not always predictable for a start-up company. Fluctuating revenues during the year and the growth of the business make it impossible to use debit products alone. It is generally difficult for a business to obtain credit from a traditional bank and cover business and employee expenses. The credit card is certainly the most suitable solution to cover company expenses. In fact, credit gives a great advantage to companies because it comes with a lot of complementary services and does not imply commissions due to its use. Credit cards allow you to have an advance on money that companies can not afford to have otherwise.
Long and expensive bank loans
A bank loan is often difficult to obtain for a small business or start-up. Indeed, this type of business is considered high-risk by banks, which are sometimes reluctant to lend money to these structures that have no financial history and whose business model can sometimes seem fragile. The company must therefore put together a very robust business plan and show its long-term viability. Indeed, small businesses only generate profits after several years of operation. On the other hand, there are other means of financing that small businesses may consider, such as microfinance organizations and crowdfunding campaigns. However, they have to take into account the high cost aspect but also the delays in obtaining these funds, which can sometimes be long.
Outside the public-private systems, credit institutions are often reluctant to offer loans to entrepreneurs. If they do so, they normally offer a line of credit or an overdraft (with significantly higher interest rates) instead of offering short or medium-term loans (with normal interest rates). Lines of credit represent a much higher risk for entrepreneurs as they are more expensive and can be revoked at any time by the credit institution.
How can Everest help you get around these obstacles?
Everest is a dedicated account for businesses, where you can send and receive money from customers thanks to a local IBAN, track your business expenses in real time and manage your cash flow through an innovative dashboard. The account opening is fully digital and online, and only takes a few hours.
Everest cards are specifically designed for the financial needs of businesses – flexible credit card limits depending on the card used, virtual card issuance for team members, and the ability to make expenses and get advances on payments with flexible credit. Everest cards provide a better view of one’s expenses as they work like debit cards, where expenses are directly reflected in the account balance for a better understanding of one’s finances.
Everest offers payment flexibility, as it allows the business to make business expenses and pay them only at the end of the month or pay them later up to 45 days. According to the profile of your company, it is also possible to get granted a credit line. This makes it easier to cover expenses and have easy access to a predefined amount per month and better manage cash flow.
If you want to learn more about Everest cards features, check out our credit and debits cards page.
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