Sometimes you decide that you really do want to continue to grow your company beyond cash flow so you decide you want to go talk to a banker and see what all they would be interested in loaning money and providing deeper banking services than you have now. I did not want a traditional bank because I already have a traditional bank that does not quite do it for me.
I was ushered into this nice conference room where I pulled out my P&L statements, growth rates, what I need to do to grow more, and otherwise, here is my business after 2 years and 10 months with a year over year growth rate of 200%. Traditional banking has always had a hard time with small business, because so many small businesses fail. This is no surprise that banks would be cautious given the current economic climate, and the level of unemployment, the level of loans that have gone south due to unemployment and the near collapse of the banking industry.
What made this amusing, and almost laughable were the conditions that the banker in all earnestness and with due care put even just on the conversation.
1. Must have a pool of 25K in cash that they can immediately take under management at 1K per month in service and control fees
2. I must pay into the pool of cash at least 1K, preferably 5K per month just to be a relevant customer
3. I must have assets of at least 3 million before they can talk to me with a very low debt ratio to asset pool. At no time can my “assets” fall under 3 million in realizable value or I can be punted out of the game and everything given recalled
I do not know many small companies that can afford to set aside 5K a month or have the desire to knowing that the costs per year are going to 12,000 just to maintain the account. I also know of few small startups that have a maintainable base of 3 million in assets because the level of investment to get there is truly no longer required. For small money, you can build out a cloud-based web 2.0 services and not even scratch the surface of 10K in total expenses let alone assets that have a tangible value. It is hard to build up three million in tangible assets when working as a small startup. No startup needs that level of assets, there is no real reason to build up that level of assets in tangible goods that the bank can use if the loan is recalled.
In many ways, this is more of a tragic tale of the banking industry and how they are looking at small businesses right now. If I had the money and assets they wanted, I would not need them. What makes this all the more interesting is when I have what they are looking for they will beat down my door to get to me, but by that time I’ll have an awesome cash flow and really will not need the bank. It is almost the catch 22 that many small businesses keep on dealing with, and one of the reasons why Angel funding might end up being the answer. That is if I want to sell part of the company.
(Cross posted at Techwag )