> You could go to the bank and get about the same and not have to give away anything.
Could you? It seems like a bank would want some kind of collateral for a small business loan (unless you spend 6 months trying to get a loan from the SBA). Unless you have a car or house you're willing to put up for collateral, I think the bank will just laugh at you.
But I'd love to hear from others that have secured loans from the bank.
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.
This 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.
Directors 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.
I'm going to make an assumption that they are looking for equity too, but I could be wrong.
Putting it together: they loan you money which you have to pay back with interest, and you give them a %age of whatever you build just as a topping.
You could go to the bank and get about the same and not have to give away anything. Is this really what you want?
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