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That's typically the case, but if you take a business loan from an old school bank, the bank will usually ask the founders to sign with personal liability on to
by Mahn 10y ago
That's typically the case, but if you take a business loan from an old school bank, the bank will usually ask the founders to sign with personal liability on top, regardless the company status. It's a different kind of deal because with a loan the bank doesn't get to own a share of the company, so their profits depend exclusively on the company not going out of business until the loan + interest are paid out.
- mattkrause 10y agoBut surely this must depend on the size of the business? I could imagine this happening when Uncle Enzo wants to open a little pizzaria as a retirement hobby/business, but there's no way Eric Schmidt and Larry Page are on the hook when Google wants to finance something. Also wouldn't the bank end up owning a share of the company (or the company's stuff) if they did default?
- Mahn 10y agoSure, my experience is that a bank will always ask for some sort of security with old fashioned loans, but I can't pretend I know what kind of deals would a billion dollar company get. But even if personal liability isn't on the line, things like having the bank seize your assets if you can't repay would still be an undesirable liability. As for the bank owning shares, sure if you default they'll take over whatever they can get, as far as the contract goes, but it's not the same kind of deal. VCs or angels effectively buy shares to sell them later at a higher price, whereas the bank is just lending money and hoping to see it back with interests; the bank may take over ownership of the company if it goes bankrupt but it's not like they'd be able to sell it for much profit, if any at all.