Improper bookkeeping and over-leveraged businesses are key reasons why banks stay away from committing to finance
Banks won’t be providing capital to startups anytime soon because most haven’t learned proper financial management, the head of business banking at Abu Dhabi Islamic Bank has said.
Mahdi Kilani was speaking at the Arabian Business Startup Academy being held at the Grosvenor House in Dubai.
“Many of the startups we’ve seen tend to be over-leveraged, with improper bookkeeping done by part-time accountants,” he said. “It’s why we don’t provide financing until they’ve been in the business for at least three years.”
That banks are averse to lending to nascent companies is a myth, according to Kilani.
“Don’t believe it. In the last three years, we’ve invested significantly in small and medium sized organisations,” he said.
“When you have a mature business, banks will rush in. But the main reason they’ll stay away is that the business is over leveraged.”
Over spending proves to be a bane for many entrepreneurs who are poor at managing their money.
“What they need to stop doing is over spending. They won’t make any money in the first six months,” said. “So it’s very important to not over-leverage the business by piling on too many pay back commitments.”