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To be clear, we're talking about an unsecured loan against the corporation. That is, it is clear from the beginning that if the corporation goes bankrupt, they
by Atlantean_IT 15y ago
To be clear, we're talking about an unsecured loan against the corporation. That is, it is clear from the beginning that if the corporation goes bankrupt, they will not be seeing their money again.
Of course, a bank would not be interested in this; only an investor with a willingness to take a risk and some confidence in the endeavor. That is who we are talking about. I'm asking about what %annual interest is typical for an unsecured loan from such a seed investor.
We're not talking about stock because we don't have current plans to sell or go public, so stock wouldn't make sense from an investment perspective. I'm sure there have been other start ups who have been in a similar place; I'm wondering how they set it up.
- JamesPeterson 15y agoThis is not an ideal fundraising instrument for a startup, because it is likely the fair rate of interest will be higher than the loan amount itself (ie >100%). For a pre-alpha startup, think equity. Any investor will want their chance at a return which reflects the opportunity costs and risks of their investment. Edit: stock makes plenty of sense for investment. The purchase of equity is the same as buying a stake of future cash flows, whether this is as growth or dividends. Note that responsible directorship applies.
- chris_dcosta 15y agoDirectors of corporations are not always protected from a creditor of the corporation that goes into administration. If the creditor claims that the company was trading whilst insolvent (usually the case when a company goes bust) directors can still be personally liable for the debt.