For a bootstrapping small business, the road to financing can seem riddled with systemic hurdles designed to keep them from success. It costs money to set up a legal entity, establish a business bank account, and log significant time in business—and yet, banks require entrepreneurs to have already met these milestones to access money. Here are the most common reasons why small businesses struggle to get financing in a traditional lending environment.
New businesses can be a risky bet for traditional lenders—about 20% of ventures fail within the first year. So, anyone applying for a loan with less than two years’ worth of time in business (TIB) will probably hit significant roadblocks. Additionally, most lenders start the clock for TIB when a business banking account is opened, not when a storefront was opened or legal paperwork was filed.
But such strict requirements leave out a huge piece of the lending market: over 500,000 new small businesses were founded during the COVID-19 pandemic, from mid-2020 to mid-2021. You can scoop up these customers by offering them pick-your-payment equipment leasing with Clicklease and help them achieve their entrepreneurial dreams.
Startups famously strain their founders’ personal credit, from maxed-out credit cards to second mortgages used to fund operations. Someone trying to bootstrap their way to small-business success might not have separate business accounts or credit cards for their revenue, and their credit score suffers for it. This scenario creates two problems: the business itself doesn’t have a credit history, and the owner’s personal credit is cratered.
But that doesn’t mean they’re a bad bet. An equipment-specific loan mitigates the risk by having the collateral in the equipment itself, which lowers some of the traditional barriers for credit-challenged customers. Once they have the equipment they need, they can start earning the revenue to grow their business.
Compared to white business owners at 60% and Hispanic owners at 50%, black business owners get approved for only 29% of the business loans they apply for with big banks. A justified fear of rejection stops many black business owners from seeking capital and accordingly stifles the growth of diverse businesses and the communities that support them. And yet, 80% of entrepreneurs of color are Gen-Xers or Millennials—a demographic that’s poised to stay in business for decades to come.
This is yet another significant segment of customers that you can boost up with point-of-sale equipment leasing. No-fee, incremental purchasing with Clicklease allows business owners to circumvent the traditional lending system without subjecting themselves to hard credit pulls and more rejection.
Regular business financing often requires a mountain of paperwork, including months of bank records, articles of incorporation, credit card statements, and letters of recommendation (seriously). Gathering that much documentation takes time and might even prove impossible for entrepreneurs who haven’t incorporated or have limited TIB.
Because Clicklease evaluates applications with an algorithm, your customer can complete the application on a cell phone—no tower of documents required.
Between the costs of originating an application and compensating a human underwriter to evaluate the risks, banks often can’t afford to disburse loans less than $15,000. This threshold poses a problem in both directions: apply for less, and it’s not worth the bank’s time; apply for more, and the requirements for down payments and collateral can skyrocket.
How can asking for more money help cash-strapped entrepreneurs? If the entirety of their financing is tied up in one physical asset—that is, the equipment that your customer purchases from you—they’re able to request the full purchase price without putting up collateral or facing a high rejection rate. Everyone assumes less risk for more gain.
Pain points abound for small business owners seeking leasing, but Clicklease can solve them—with no minimum time in business, no hard credit pull, no paperwork, and amounts ranging from $500 to $25,000. Let’s talk about how we can help your customers get the equipment they need to grow their business.