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Comment by rossdavidh | Hacker News Reader

Speaking as the spouse of an urban small-business owner (retail), I think the availability of lending is a mixed blessing. Every new small business needs to learn a few things about what works and what doesn't, before it will be successful (even when, perhaps especially when, they don't think they do). Getting a business loan at the very beginning of the business' life, means you spend all the money when you know the least. Starting lean with just money raised from family and friends means you have to iterate to bootstrap up, and this results in getting some learning before you get the money. Nobody thinks they need to, but I have (in a city) seen more small businesses sunk by their business loans than helped.

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I definitely agree, even just looking at my past. I have had financial support for projects that went nowhere because I had no idea what I was doing.

But, on the other side of that, if financing is not available at the right time a business can fall apart pretty quickly. If employees are not paid, they quickly look for other work. Machinery falls apart if not maintained. There needs to be a reliable source of capital for any business to succeed.

It is up to the business owner to take out loans and allocate those resources responsibly.

> It is up to the business owner to take out loans and allocate those resources responsibly.

Isn't it up to the bank to allocate its resources responsibly?

Any business will fail unless it allocates its resources responsibly. If banks don't, they'll go out of business (or get bailed out, but that's a different topic), if small businesses allocate money irresponsibly, they'll go out of business. With or without a loan.

The priorities are different, though. The bank wants to maximize the amount of money that gets paid to them, you want to maximize the amount of money that gets paid to you. While the bank doesn't want you to go under, they also aren't necessarily thinking in your best interest either; getting your loan paid off and never needing another one is almost as bad a result for them as if you went under. This doesn't mean they're bad people, just that the incentives, while not fundamentally incompatible, are also not fully aligned.

Raising money from friends and family is something I would not recommend. If the business fails you will have a lot of broken relationships unless the lenders have enough money to not care.

Dave Ramsey talks about personal lending and recommends that you treat it as a gift, not a loan, because it can be so destructive.

It also only works if you come from a relatively rich family or have a rich social circle. Not everyone can tap that.

This right here is something way too few people understand. I basically had to unlearn a lot of bad habits from my family before I could get myself sorted and on a path to financial stability.

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