Frontpage News 2014 Entrepreneurs must...

Entrepreneurs must bring money to the bank

17 November 2014

Week 47: In the start-up phase, entrepreneurs need two types of capital: venture capital and a bank loan. The two types of capital are often confused, and some entrepreneurs thus experience that the banks do not meet their expectations.

By Louise C. Mogensen, Deputy Chief Executive at the Danish Bankers Association.
Financing is a key topic of this year’s Entrepreneurship Week, which is launched across Denmark in Week 47. Throughout the country, there are numerous events that focus on helping entrepreneurs to obtain financing, so a creative business idea can be realised and become a good business.
There is definitely a need. Firstly, it is in the interest of entrepreneurs to create clarity about where and how they can resolve their individual financing needs. We experience that many entrepreneurs lack knowledge about the fact that different finance sources have different roles and must be employed at different stages in a company’s lifecycle. Secondly, it is in the interest of society to create new Danish companies, innovation and thereby also new jobs and economic growth.

Venture capital

The entrepreneur must realise that a start-up often requires venture capital, which can be obtained from own savings, from family, friends, or through a house, car or holiday home as security. If this is not possible, the entrepreneur can obtain venture capital from e.g. venture funds, business angels or through crowdfunding.
The main characteristic of these finance sources is the capital, which is invested through private and professional’s buying of shares in new companies. The capital is, among other things, used to develop new products and/or launch them.
The entrepreneur must be aware that venture capital is not free of charge, as investors require an interest rate that reflects the risk of their investment. Naturally, the risk is highest in the company’s start-up phase, where the expected potential has not yet been realised.

Bank loans 

According to legislation, the banks are not allowed to buy shares in a company, unless the investment is a natural extension of banking business, or if special circumstances apply. Therefore, the entrepreneur is not able to obtain venture capital in the bank. Many entrepreneurs have thus experienced that it is not sufficient to get a great idea, go to the bank with the idea based on dreams and gut feelings – and then the idea is realised.
Even though the banks are not able to provide venture capital, they still have a great interest in good entrepreneur start-ups. As a rule of thumb, the banks are involved in the company’s life cycle, when it can document earnings and provide securities for loan finance or a bank overdraft to finance operations.
I hope that Week 47 will inspire many Danes to start-up their own company, and provide potential entrepreneurs with insight into how financial planning and not least realistic expectations for the project is just as important as the creative idea.
Our society needs more growth entrepreneurs. Access to financing is one necessary framework condition, and the banks have a joint responsibility to finance healthy and viable companies. However, it is a task that we must solve in collaboration with other finance sources.

Week 47-event in the Danish Bankers Association

Subject: Become prepared for the meeting with the bank.
Target group: Entrepreneurs, who need financing.
Organisers: The Danish Bankers Association, the Danish Chamber of Commerce, FSR - Danish Auditors.
When: 20 November 2014, 14:00-16:00 pm.
Where: Finanssektorens Hus, Amaliegade 7, 1256 København K, Denmark.

Read more about financing

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