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Just out of curiosity, what options are there for businesses just starting out with little assets to offer as collateral? Are there banks taking a sort of “vent

by akrai 7y ago

Just out of curiosity, what options are there for businesses just starting out with little assets to offer as collateral? Are there banks taking a sort of “venture style” approach to opening lines of credit where they offer them to businesses whom they think have a high probability of success (and therefore paying the loans)? In this case, the lender would be assessing the strength of the business they lend to similarly to a venture capitalist. And if this is not already available on the market, do you think it would be appealing to startups?

shoo 7y ago
I don't understand how it would be similar to VC. What is the upside for the bank?
- akrai 7y ago
  The bank would be paid interest on the loan. By VC I was just trying to put it in analogous terms. Basically, rather than judging whether the loan will be paid off based on the company’s past income/assets/etc the lender tries to determine whether it would be paid off by judging the company’s future chances of success.
nabla9 7y ago
If bank sees the risk too high to underwrite it themselves. Typically when there are no assets and collateral in the firm, banks require someone else to underwrite the loan. Bank underwriting is one of the areas where machine learning is used to evaluate risk. It can be you if you have property or assets, it can be your parents, friends etc. with assets. If you can't pay the loan, they will answer for it. It's kind of 'sponsored underwriting'.
PopeDotNinja 7y ago
A few options: wait to start a business (what most people should probably do), get friends and family to invest (this is a good way to lose friends & family), make money the old fashioned (hint: it involves earning it). You also have the option to borrow money using credit cards, but I recommend against this. You could sell your $100,000 Magic The Gathering card collection on eBay, too. Or do what I did... after you max out your credit cards, use money you saved up to pay for taxes to fund a business, run out of money, and end up homeless with $200,000 in debt (including student loans). You have also just discovered why there are early stage investors. If you create an app has some potential to make billions that attracts millions of active users in a month, but doesn't make a dime now, no bank will lend you money the 16 million USD you need to keep building that. But if you convince a tier 1 VC (Accel, Sequoia, A16Z, etc.), to invest 12 million, an early stage bank might lend you 4 million USD, using your big pile of VC money to secure the loan. Just remember that raising money the first time is super hard. You can easily run out of real money by spending too much time trying to raise money (which will suck extra bad if you are living off the money you set aside to pay taxes). Or you can just say "fuck it", go for it, and hope for the best. When I was homeless, I kept hustling, managed to get my hands on a check for $5000, turned that into a business with 15 employees and sound it a couple years later, and sold it for $200,000. You can read a very polished version of that story in my LinkedIn profile (link in my HN profile).

by akrai 7y ago

shoo 7y ago

I don't understand how it would be similar to VC. What is the upside for the bank?

akrai 7y ago
The bank would be paid interest on the loan. By VC I was just trying to put it in analogous terms. Basically, rather than judging whether the loan will be paid off based on the company’s past income/assets/etc the lender tries to determine whether it would be paid off by judging the company’s future chances of success.

nabla9 7y ago

If bank sees the risk too high to underwrite it themselves. Typically when there are no assets and collateral in the firm, banks require someone else to underwrite the loan. Bank underwriting is one of the areas where machine learning is used to evaluate risk. It can be you if you have property or assets, it can be your parents, friends etc. with assets. If you can't pay the loan, they will answer for it. It's kind of 'sponsored underwriting'.

PopeDotNinja 7y ago

A few options: wait to start a business (what most people should probably do), get friends and family to invest (this is a good way to lose friends & family), make money the old fashioned (hint: it involves earning it). You also have the option to borrow money using credit cards, but I recommend against this. You could sell your $100,000 Magic The Gathering card collection on eBay, too. Or do what I did... after you max out your credit cards, use money you saved up to pay for taxes to fund a business, run out of money, and end up homeless with $200,000 in debt (including student loans). You have also just discovered why there are early stage investors. If you create an app has some potential to make billions that attracts millions of active users in a month, but doesn't make a dime now, no bank will lend you money the 16 million USD you need to keep building that. But if you convince a tier 1 VC (Accel, Sequoia, A16Z, etc.), to invest 12 million, an early stage bank might lend you 4 million USD, using your big pile of VC money to secure the loan. Just remember that raising money the first time is super hard. You can easily run out of real money by spending too much time trying to raise money (which will suck extra bad if you are living off the money you set aside to pay taxes). Or you can just say "fuck it", go for it, and hope for the best. When I was homeless, I kept hustling, managed to get my hands on a check for $5000, turned that into a business with 15 employees and sound it a couple years later, and sold it for $200,000. You can read a very polished version of that story in my LinkedIn profile (link in my HN profile).