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Comment by 40acres | Hacker News Reader

I'm not particularly interested in starting a start up so I've never looked this up, but are conventional small buisness loans impossible to get for an internet based buisness?

From a lay persons view it seems like handing out small buisness loans to internet companies has a higher chance of profit and less risk profile than other types of buisness.

To start a restaurant for example you need furniture, cooks, wait staff, need space, suppliers, etc. You can start up a SASS with a couple of computers, an AWS account, and a WeWork subscription. There is zero marginal cost, I would bet productivity per employee is very high compared to other industries, what am I missing?

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At a point where I had something like eight years of operating history and showed a series of banks financial statements with mid six figures in revenue the overwhelming response was "Well we will not automatically punt out of the conversation where we agree to loan you 10% of that topline number but underwriting is expensive and that is really small beer... have you considered just getting more credit cards? We can accommodate that."

Among other factors complicating the math: you know how easy it is to start a SaaS company? It is similarly easy to credibly claim you are starting a SaaS company. (It is rather harder to credibly claim you are opening a pizza parlor; you need to have e.g. a location under contract.)

If you offer $100k to anyone credibly claiming to open a SaaS company, and charge reasonable business loan rates... fraud is going to be pretty annoying.

Business failure is going to be pretty annoying, too! What happens when 6 months in the company is making nothing and Google offers the founder Google-appropriate amounts of money to get a real job? Answer: you lose all your money.

(VCs have a saying about this which is reasonably well calibrated: Don't take venture risk for debt returns. Bank of America is very much not in the business of taking venture risk in their SMB lending segment.)

Not impossible, but very difficult. It's pretty much impossible at big banks. When my company was bootstrapped to $250k/year in revenue (with several years of history), Bank of America wouldn't even extend a $10,000 line of credit. Each year, they would promise that they would be more "start-up" friendly, but it never happened (even when we crossed the $500k mark).

You'll have better luck with local banks that work with startups. We worked with Cambridge Trust in Massachusetts to get a line of credit and it was a pretty painless process. Working with local banks definitely involves forming a personal relationship though, so there's a little time investment. Without external funding, you'll also find even the local banks will require a personal guarantee.

There's a huge gap between VC funding and loans from big banks, so I'm excited to see people tackling this problem.

Banks won’t lend to startups in the UK, unless secured by assets just like a personal loan.

In the UK almost all bank lending is related to the housing market (I read a stat where it’s ~ 95%).

Basically, the banks are extremely risk adverse and only care about rent seeking.

Even if you’re in business and doing well, it’s difficult to get a loan.

In the UK it's pretty easy to get a business overdraft. Although those will come with a personal guarantee from the director(s), they don't need to be secured by any assets.

Sure, but I wasn't talking about overdrafts.

If you are actually doing well (not just in your mind), there will be angels that are happy to give you a 50 or 100k loan at 10% per annum. Even in Europe.

Sure, but I wasn't talking about Angels.

It's definitely easier to get a $1m bank loan to open an Arby's franchise than $100k loan to build a SaaS startup.

Yeah pretty much unless you wanna guarantee the whole loan amount with personal collateral. Loan underwriters want to see lots of things most startups don't have, like positive cash flow, operating history, and credit history.

The question is, are these guys going to give you a loan without positive cash flow or a clearly working model?

If you can prove it works then it's generally not hard to raise the money.

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