Hard reality in the world of start-up financing

Today I had a very enlightening conversation with a small bank director in town following a very unexpected outcome relating to the EU business consultant.

To recap, when I submitted my completed business plan to my business consultant in early January, the consultant was quite impressed with the amount of work and the quality of the information. It included a marketing, plan, a financial plan, suppliers offers, research documents and a 60 page business plan form from the E.U. and local government New Business Support Bureau containing an enormous number of questions to be expanded on, research, graphs and financial tables to be completed. This would serve as a basis for evaluation as to the viability of the business project.

Before leaving, I asked how long it would take for him to evaluate the project and about formatting the business plan form for presentation. Obviously it could not be left as is because the paper form had been necessarily filled in by hand and contained the usual correction marks. I left his office assured that he would format the information and return it to me.

Last week, however, when I picked up the plan to take it to my local business consultant, this part of the plan was missing. Friday, upon meeting with my local business consultant, after I explained that some important part was missing from the plans, he went so far as to suggest that the EU consulting bureau had probably kept the plan containing my original idea and research notes, to sell to some other entrepreneur looking for a good business idea. He encouraged me to get it back as soon as possible. Feeling abused and worried, I went home that evening wondering how ever I would get the plan back.

Monday I called the EU consultant and was assured the plan would be finished and emailed in electronic format as soon as possible. Yesterday it duly arrived by e-mail in pdf format. When I saw the e-mail containing it, I immediately breathed a sigh of relief. So I was quite astonished when upon opening it, I discovered my handwritten rough draft form exactly as I had given it to him early January. The only work he had done was to scan the 60 pages and create a pdf document from that. My feeling went from astonishment to anger to ridicule and laughter regarding this government-backed consultant and his supposed work on my behalf. Such as it is, the plan is not presentable so I am undertaking its total rewriting and formatting, work that I could have done a month a ago, if the consultant had been truthful.

This morning I went around to the local banks inquiring about financing and opening a small business account. One small bank director, after explaining the banks conditions and services to small businesses, asked if the plan had been deemed viable by any consulting firm. I mentioned the work with the EU and local government funded business consultant who had evaluated the project quite positively. He smiled that bankers smile and went on to comment that, although he did not know the particular office I mentioned he did have knowledge of a similar such service that is known for encouraging every entrepreneur to go ahead with their project because they get paid based on the business plan that are approved through their consulting services. His point was that such approval did not mean the project was actually viable but that these government organisms subsist by generating new requests for business funding and, each request bringing a kickback for them. They don’t evaluate whether the project has a chance to get financed or whether the entrepreneur is able bring guarantees to a loan.

if such is the case here, government backed free services to start-up entrepreneurs, though it sounds like a very worthy initiative on the part of the government to foment new business, it reality has been turned aside form it’s original purpose to become a effortless means of feeding some more bureaucrats. So much for the worth of EU consultant project evaluation.

As far as business loans are concerned the bank generally said they approved ICO backed loan finances based on the guarantees offered, either money deposited in the bank and held as collateral or some important piece of wholly owned real estate owned by the company or one or other of its members. Since I don’t own any real estate outright, I need to find collateral capital, either mine or partners to start up. Ideas and projects, however viable and solid they may be on paper, have no weight in the banks eyes.

As to terms and conditions, the supposedly advantageous ICO government backed business loan are in reality minor, being very similar to those of a home loan, with the exception of the loan fees which are reduced or free. In conclusion, depending on the time-frame and amount of the loan, it may or may not be an attractive option to pursue.

Lastly, one bank director advised me to look very carefully at the government aid conditions before accepting it since what may seem like an appealing offer in the beginning may prove to be very stifling for the business at a later date. It could in fact have a disastrous impact on the profitability and future expansion.

Oh boy now I got more to think about.