Table of Contents

14. Other Investors

1

Lions and tigers and bankers, oh my!

The table back in Chapter 3 contains many other sources of funding. However, most of these are only available to established, revenue-generating companies, not early-stage startups.

The next two down that list are SBA loans and other bank loans. The SBA is the U.S. Small Business Administration, an arm of the Federal government that helps provide funding to small businesses. The SBA loan program works through banks, providing (relatively) low-interest loans.

A year or two after your company begins closing customers and earning revenues, it will have enough of a track record to attract such loans from the SBA or directly from banks. Or, if your company needs to buy some big, expensive equipment, a bank may be willing to lend you a portion of the price of that equipment, using the equipment itself as collateral.

More commonly for early-stage startups, the founder will use their house as collateral for loans, risking ownership of their homes in exchange for the funds needed to get their startup started or growing. And even once a company is up and running with revenues, banks often ask the founders to sign a “personal guarantee” on the loans, which similarly risks a founder’s house for their business.

This behavior by banks is again not based on greed, but on risk. The reality is that startups fail at a very high rate, even those with customers and revenues. Banks are businesses in the business of earning money on their loans, and thus they limit those loans to the least-risky lenders.
 

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