Avoid Banks When Seeking Funding | Inc Authority

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5 Reasons to Avoid the Bank When Seeking Business Funding

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Estimated reading time: 4 minutes

For most people, going to a traditional bank to get funding for their business seems like the common-sense choice. But not only are there way better options out there for business funding, you should avoid traditional banks like the plague.

In this blog post we’ll explore 5 reasons why.

#1 Banks are risk averse

This means they avoid lending to new businesses unless you provide collateral. Bringing a large sum of money to the table or having enough assets to pledge can be a challenge especially for startups.

And providing collateral is risky and may not only interfere with your professional goals…it can interfere with your personal ones too. Say for instance you put a lien on your current home and then later decide to move. That lien will follow you to your next residence and make it difficult to purchase another residence.

In general, banks prefer to work with proven track-records. And while you can appreciate this, where are new businesses to go for funding if traditional banks don’t like lending to them?

#2 Banks are slow

When it comes to lending to new businesses, banks are slow and bureaucratic. Just the process of applying for a bank loan can be tiresome. And as every business owner knows, time is money and money is time. There’s a ton of red tape to cross, meaning the turnaround time for a bank loan may be longer. This can push your timeline to launch further back than desired and can be detrimental, especially if you’ve tailored your initial marketing strategy for a specific date or holiday.

Alternative lenders sometimes have a streamlined application and underwriting process which could potentially get you funding within a few business days.

#3 Banks don’t trust new businesses

Banks prefer to lend to businesses with long track records. They want to see payment history and track your success over time before they’ll feel comfortable lending to you. You may need at least two or more years in business to get a bank loan. That’s great…if you’re business has a long track record, but not so great if you’re new the game. Having established business credit history may also be required to qualify. You need lenders who are willing to take a chance on your dream.

#4 Banks have shockingly high interest rates

Banks will charge you a slightly higher interest rate than they pay depositors, so they can profit. The result is shockingly high interest rates. Such high rates discourage new business owners from getting loans, which actually harms the economy by slowing consumer demand.

A bank will also charge higher interest rates if it thinks there’s a lower chance that the debt will get repaid (i.e., new businesses). That’s why banks will always assign a higher interest rate to revolving loans such as credit cards. What makes this difficult is that these types of loans are more expensive to manage.

Additionally, banks also charge higher rates to people they consider risky. The higher your credit score, the lower the interest rate you will have to pay.

#5 Banks want to invade your privacy

Because they’re risk averse, banks conduct an intense credit check and investigate every part of your financial history. If your business is new and doesn’t have a business credit score, they’ll have to use your personal credit score, and these days, any score under 800 is suspect.

Worse still, your small business loan can be denied for credit score problems as little as one negative rating on your credit report. This can make it difficult for new businesses owners who may be working on building their credit.

So, where do you get funding?

If you read the above facts and are thinking, “wow…it’s almost like traditional banks don’t like new startups”, well then you’re right. But before you lose hope, it turns out that there are a lot of non-traditional banks and lenders out there EAGER to lend money to new business owners.

These non-traditional banks believe in the entrepreneurial spirit so much, they’re willing to take a chance on new startups like yours. But how do you find these non-traditional banks and get your business funded?

Lucky for you, because we here at Inc Authority have helped thousands of businesses get the funding they need and deserve, we know these companies well and have developed a great relationship with them.

So, give the funding experts at Inc Authority a call. We’ll answer all your questions and walk you through all your lending options to ensure you select the one that will allow your business to thrive.


Incorporating is the most powerful thing you can do to legitimize your startup. And at IncAuthority.com, our setup LLC services are 100% free. Always. So, don’t wait. Form your new LLC today and enjoy the protection due to you and your business under the law.

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