As a serial entrepreneur, there’s a problem when your burn rate doesn’t keep pace with your revenues. Alarms go off on all sides. The usual answer, in my early years, was to borrow money from family and friends to bail me out. It was a cold day in hell finding a friendly bank with a rescue in the form of a line of credit or a bridge loan. Banks want personal guarantees and if you have any sense you would run from signing away your corporate protection.
Should banks be your friend? Probably not, they are in the business of loaning and managing your money and are not liberal thinkers nor are they prepared for the high risk of loaning money to a start-up no matter how well the founder touts his story.
The banks especially the five big Canadian banks make billions each quarter in profits and while they could easily pay 5-7% in interest they can get away with paying us under 1%. Why would they care about clients (start-up founders) who may be problematic? It’s a function of risk and the fact that they can get away with offering low interest, it’s in their interest and responsibility as stewards to their shareholders.
When you look at financing a start-up family and friends and angel seed rounds, then the VC round are the preferred sources of capital. The banks are way down the list as is using your own personal money. After all you are giving your investors the possibility to make lots of money from your endeavor that’s why they are taking the risk. Everyone understands the scenario.
The Business Development Bank (BDC) is the only bank devoted exclusively to entrepreneurs. Having said that I have found them to be hard to work with, offer high interest rates, are very conservative and not the friendly bank they say they are especially when the going gets tough.
In 2013, the Canadian Federation of Independent Business did a study of 13,000 businesses. The Canadian Imperial Bank of Commerce (CIBC) was the worst big bank for small business, unchanged from 2010. According to the Financial Post, Credit Unions outperformed the big banks in serving the needs of Canada’s entrepreneurs.
I got a call out of the blue the other day from a bank, the National Bank of Canada (the National Bank is the 6th largest in Canada and in 2011, was placed third in Bloomberg’s list of “The World’s Strongest Banks”). The senior manager on the phone asked if she and her colleagues could buy me lunch at a tony Vancouver restaurant. I agreed and when I told my wife she said, it must be mutual fund season so they will try to sell you something. With this in mind I went to the meeting expecting to see 30 other people being piled into a presentation room with a high-pressure salesman at the front of the room.
Instead, I was met by two senior execs and a VP who excitedly invited me to a table for lunch – just the four of us. They told me that as a global influencer they were interested to know my opinions on entrepreneurship and startups and how they could support the founder community. Seriously? Banks don’t do that!
I told them my story of serial entrepreneurship, the good and bad of being a startup founder and the surprise I felt by being asked to sit down with them. They were surprised too! They were surprised that banks forgot about the human side of entrepreneurship. To banks it’s an account and as they freely admitted bankers don’t necessarily understand the troubles startups face but they were keen to listen.
These youthful bankers were a breathe of fresh air in that they wanted to listen to me and were genuinely shocked by my commentary on the state of banking in 2017.
We all agreed that even in the best of times loans are hard to get and most often they are not given to start-ups struggling to get traction. They were surprised to get the real facts from my perspective. As an Adjunct Professor of NY Institute of Technology I could understand the problem. Academics are the same way both insulated from the reality issues facing founders, living in a bubble while the founders are looking for talent and money, hoping for a liquidity event before they burn through the little money they raised as a start-up.
I told the group of National Bank (NA:CA) execs that they should think past the founder as an account and take their motto, “the Bank for Entrepreneurs” seriously. I told them that traditional banking might not be interesting to founders until they have a liquidity event when they need a bank for their hundreds of millions – hmm!
I’ve worked with other banks on projects to support entrepreneurs, like award ceremonies. They may have offered a small sponsorship but it was all lip-service, they didn’t walk the walk or talk the talk when it mattered. When I was told the National Bank (headquartered in Quebec) was the Bank for Entrepreneurs I asked them if they were serious. I followed up, of course, being the skeptic I am and found yes, they are entrepreneur friendly. They service 138,000 small businesses and have donated $14 million to 7 programs and partnerships supporting entrepreneurship.
We talked for almost two hours about offering services to entrepreneurs much the same way some banks (RBC) provide workshops for newcomers to Canada on how to do business in a new country far from home. Treating an entrepreneur like a valued customer, giving them small lectures or workshops on issues that might be impactful to them but not a big deal for a banker to explain like debt financing or compensation models for employees goes a long way to break down barriers.
We explored the idea of providing space for start-up Meetups in their offices and the need for a forward thinking Entrepreneur-In-Residence position to offer advice one-to-one for struggling entrepreneurs. If I were offered support in any way as a start-up founder I’d appreciate the help and certainly would remember where I got it.
The National Bank execs got it and promised to work on it. We have an open dialog and a commitment to meet again – forward thinking and realistic! If the 14,350 businesses that chose National Bank over the past year is an indication, entrepreneurs are moving away from traditional banking and looking for alternatives.