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Comment by robzyb | Hacker News Reader

> Just to be clear though debt is actually a preferred type of financing because it is one of the cheapest forms.

Honestly? That statement seems a tad simplistic to me. Especially in the context of startups.

The big difference is that startups generally can't get bank loans on the scale they need, because the risk is so high that it's bad for the lender. If I could replace an investor with a 10% staake with a bank that I have to pay back at 8% interest, I'd take it in a heartbeat.

When the company has no liquid asset or property, the bank will use your personal assets (e.g. your house) as a security. These loans has to be continued at the year end or be paid back within a year (over-year loans have different regulations). This is what happened to me. After two years the bank didn't continue the loan because we couldn't show up 10% profit increase or 10 times of the loan in revenue, so I had 8 days to a) pay it back b) find an other bank to finance, but because the loan was in my books, and my personal assets were also the securities, it was very-very difficult to solve this situation.

What makes a start up different than any other business?

The urge to aggressively, rapidly grow.

This is a distinction without difference. You could've also said, "Startups have fewer employees" for instance.

How does the urge to grow separate a startup from a business in the desire to obtain low cost debt?

Investing in getScale is vastly different to investing in IBM.

Lending to getScale is vastly different to lending to IBM.

Therefore the debt/equity argument and balance is vastly difference.

From a lenders perspective: Credit worthiness, free cash flow, ability to service loans, lack of collateral.

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