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Debt: Why won't banks finance my debt raise?

You want to raise debt, but there's a problem: banks don't want to finance you. And no matter how you look at it, you just can't seem to grasp the banking logic. It’s time to take notes! We’re going to explain everything you need to know about raising debt from your financial partners (BPI and retail banks).

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Understanding banks

First and foremost, there is one crucial element to understand: banks! You need to know that they only lend to people who have money or whom they already know. So, if you’re a complete stranger to them, you need… money!

And when do you have the most cash on hand? During a fundraising or equity increase phase. That is what banks base their decisions on. Therefore, the ideal approach is to pair your non-dilutive fundraising with your equity round and initiate discussions before the round closes to get the banks on board.

N.B.: Equity Equity = Share capital + share premium + reserves + annual profit + retained earnings

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Combining equity and debt

Increasing equity is a key moment for startups to position themselves for debt. But be careful: this is only possible if you don't already have too much debt! Banks typically allow for a 40% to 60% gearing ratio (debt-to-equity) depending on your business model. In some cases, particularly for Hardware as a Service businesses where the assets can be used as collateral, it is possible to push the gearing ratio higher.

However, you shouldn't wait until your fundraising is finished to approach banks. As mentioned, the entire financing process (dilutive and non-dilutive) should happen simultaneously. Because yes, your cash position is one of the most important factors. Banks need to be reassured about your ability to repay. Your fundraising is a high-impact moment that you must capitalize on when negotiating with your future financial partners.

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For example:

If you are raising €1M, you can prepare your file and present it to banks (BPI + retail banks) as soon as 50% of the equity round is closed, and obtain financing agreements subject to the final completion of the round (100% reached).

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Leveraging key players: the BPI

The BPI (Public Investment Bank) is a major player you shouldn't overlook when thinking about tech and innovation! Why? Because unlike traditional banks, the BPI has in-house scientific experts who can directly validate the quality of an innovation project.

If your startup is still in the early stages, it won't fit into the standard analysis grids used by banks. By acting as a guarantor for the project (up to a maximum of 70% of the loan) and also financing part of your development project, the BPI will help reassure banks about their risk exposure and convince them to finance you. One of the keys is to include the BPI alongside other commercial banks (retail banks) in a banking pool (non-syndicated) that will serve as the launchpad for your bank financing over the coming years.

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For example:

Let’s go back to our example. If you are already raising €1M in equity, it is possible to secure €200k in bank financing from the BPI and two €100k loans (totaling €200k) from two other banks that would become your long-term financial partners. The idea is to start the relationship with a small amount of financing to get to know each other, build a relationship of trust, and forge a strong partnership.

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The extra edge: the BFT

A "Bourse French Tech" (French Tech Grant), for example, is a very positive initial signal for a project validated by the BPI at the pre-seed stage. It signifies that you have already validated your status as an "innovative" company and that there is potential for growth and technological development. And as a bonus, a grant also means extra funds without dilution!

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Don't miss the momentum

Amomentumis the train you don't want to miss! If all the prerequisites are met and you don't approach the banks at that exact moment, your post-fundraising cash burn will erode your equity levels and, consequently, your borrowing capacity. The train will pull into the station, and you'll miss it. The result? You'll have to go through another fundraising round just to take on debt.

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Pitching effectively

Another crucial element for banks is the pitch. And pitching to a Venture Capital fund is not the same as pitching to banks to raise debt.

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The differences: pitching to banks.

You need to know that banks are all about facts! They aren't interested in wild growth projections. In your Financial Business Plan, you must present them with:

• A precise explanation of your margins, costs, and final bottom-line results (P&L)
• Your cash position and projected low point (Cash Flow Statement)
• Your projected equity level (balance sheet)

And above all, put yourself in a banker's shoes! It is essential to present them with a version of your BP that features realistic, standard growth. A banker wants to be sure they will be repaid. This BP must therefore be relatively close to what is actually likely to happen: conservative assumptions, controlled costs, managed cash flow, and a near-term break-even point.

A quick bonus tip? Banks hate ambiguity. If there is even the slightest doubt, it’s the end of the line for your application. You need to be clear, and the figures presented must be consistent across all documents provided (BP, deck, and tax filings). Transparency equals trust.

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The similarities: banks are your partners, too

You need to build a long-term relationship based on trust. Don't forget that it is the account manager who will pitch the project to the final decision-making committee. They are your spokesperson. Obviously, if they don't believe in it, don't have enough information, or don't have enough confidence in the file, they won't be able to pitch it effectively to convince the committee. It is essential to build their confidence and be transparent to ensure that the first pitch to the committee is the last. You must avoid leaving any questions unanswered, as these can create friction in the process and potentially become a deal-breaker.

In short, it is important that the account manager buys into the project and believes in it! But how? By delivering a clear pitch, presenting a conservative business plan and a rock-solid financing plan, and, most importantly, showcasing a cohesive founding team!

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Raising funds gradually

Furthermore, to get a relationship off to a good start, it sometimes pays to begin with a reasonable initial financing amount. This helps you build a relationship of trust with the bank. On that foundation, you can secure your first financing more easily and subsequent rounds more quickly!

And for the relationship to go as smoothly as possible, the partnership must be a two-way street. On your end, you must also provide regular reporting to the banks, share cash flow data, and so on.

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The importance of knowing your Banque de France rating

Finally, there are cases where banks simply cannot finance you. It’s not even that they don’t want to, but it is quite literally impossible for them. Why? It’s possible that your Banque de France rating doesn’t allow for it, in which case it’s better to know that before approaching your bank! This rating is based on two elements:

• Your credit rating
• And your activity rating, which depends on the amount of revenue generated

When your file is submitted to the bank, a score is assigned based on your Banque de France rating and the bank’s own internal rating. At that point, the bank may receive a red flag from the Banque de France following, for example, a rejected direct debit on one of your accounts. In that case, your credit score will prevent the bank from financing you.

So, before you start raising debt with a bank, you absolutely must take the time to contact a startup account manager at the Banque de France. It is through here.

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As you can see, raising debt from banks requires in-depth knowledge of the sector, a certain level of expertise, and time! So, if you have any questions or need support, don’t hesitate to contact us ! Debt is one of our specialties!

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