Ask HN: Small Business Loan VS Angel/VC | Hacker News Reader

Ask HN: Small Business Loan VS Angel/VC

4 points619Cloud3 comments

I am looking for some capital to allow me to quit my 9-5 job, and work on my startup full time.

I know most tech startups these days are going with angels, super-angels, and VC funding. It kinda-seems like every tech startup these days is drinking the angel/VC koolaid. The financing option I never hear about in technology and on YC, is a traditional bank small business loan.

On first inspection is seems like a great option; I don't have to give away any ownership of my company. Once approved, the bank gives me money, and basically says do whatever you want with it, just pay us back.

The downside is of course the interest, but assuming I can become profitable in the short term, interest is negligible.

Wanted to get insight from the YC community though on thoughts about small business loans.

The problem you will find with small business loans, SBA especially, is that you can't get approved for one without revenue, or an asset that you are purchasing.

You could check out a non-traditional source for financing like http://www.lendingclub.com , but even that maxes out at 25K and is personally guaranteed (rate depends on mostly your credit score). (disclosure: I did some consulting for them a few years ago)

Bottom line: Small business loans aren't for startups, they are for established businesses.

Banks are not in the business of startups. Angels and VCs are. Small business loans for a startup are very unlikely, and only really occur when the Small Business Administration gives the bank federal assistance.

Additionally, betting on being profitable in the short term is not a good bet.

You stand almost zero chance of getting a small business loan, possibly only if you offer a personal guarantee to back it up (meaning you personally are liable to repay the loan).

Given the vast majority of startups that either fail to gain decent revenue, or just outright fail to launch, I'd have to say that you'd be crazy to offer a personal backing to loan vs. giving up some share of the company to an investor.

No offense, but if you're even asking about this, you probably don't want to be considering the loan route.

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