4 restrictions of bank financing

Financing through a bank is the way lending has traditionally been done. And we all know that just because something has been done a certain way for 100 years means we should keep doing it that way for the next 100.

Washing our clothes in the tub? Great. Telegrams? Sign us up.  Corsets, bloomers, and top hats? But of course, sir.

As intriguingly cumbersome as these options sound, they’re not without their limitations in the 21st century. Business operates differently than it did 100 years ago, so it’s time to implement forward-thinking business practices. Sorry, top hats. Maybe at the throwback Thursday meeting.

4 restrictions of bank financing

1. Wasted time and money (and paper)

This first issue only shines light on other problems with bank lending, but for the sake of brevity, we’ll pretend like it’s just one restriction. Banks require seemingly boundless amounts of paperwork – and hey, it’s not all their fault. They’re just doing their due-diligence and making sure you meet all the proper criteria for getting a loan. Problem is, taking minutes and hours and days just to fill out an application is unrealistic, not to mention wasteful of your time and money. By the time you’ve made it through the application, more paper gets wasted as banks process, process, process on their end. Think of the superfluous amount of time and paper and trees used in such a cumbersome system. Think of the trees, people.

2. One-size-fits-all lending

While you’re busy filling out all that paperwork, make sure you give just the right description of your business, because banks’ parochial criteria prevents many businesses from being accepted for loans. Traditional lending means only traditional companies and business plans get accepted for financing.

3. Limited funding uses

So you got the funds from the bank. Great! Now you can do whatever you want with the money, right? You’ve already been approved and are committed to making payments on time, so there shouldn’t be a problem. Right? Well… Not exactly.

Banks audit your proceeds and how you spend your money. So maybe calling it “your money” is a bit exaggerated then. Maybe we call it “your allowance with strings and stipulations attached” instead.

Ah, it just rolls off the tongue.

4. Over-collateralized security interest

Let’s say you apply for your allowance anyway and get funded. It’s not exactly the happily-ever-after you dreamed, but things could be much worse. Those small quirks (restrictions) you initially found endearing about your bank loan – the waste of time and money, the limited use of funds – don’t really seem like deal-breakers, and you’re glad you made the commitment you did. Overall, you’re happy. Awesome, congrats! Yet pretty soon, you find your funding relationship going downhill, and the spark just isn’t there anymore. Why? Wasn’t the difficult part supposed to be over? Those little quirks you once found charming just don’t seem cute anymore. The waste of money, for instance, is not only still apparent, but also apparently dangerous to your livelihood of business.  Banks take more assets than what you’ve applied for, so if anything goes wrong in your relationship (like you mistakenly miss a payment), you could lose every last penny.

Guess you should’ve gotten that pre-nup.