BANKS

Banks are a major source of both short term and long term funding for many conventional companies. Through borrowing, an entrepreneur is able to acquire the funds he needs to operate his business without giving up control of a business. For startups the principal problem with bank borrowing is that, in addition to charging interest, banks require borrowers to adhere to very strict operating standards to keep the loan in a good standing. The pressures of operating in such an environment can outweigh the benefits, particularly for a startup company that may experience difficulty being confined by external restrictions imposed on its changing business models.

Another problem with bank borrowing is that, when making a decision whether to extend a loan to a startup company, banks pay close attention to the company's financial history and projections and to the management of the business. Since most startup companies rarely have more than a business plan and a budget, qualifying for bank loan is often not possible. Also, banks usually will not lend funds without collateral valued at least the principal of the loan. Most startup companies are not able to provide such security. Many technology startups are not "asset-intensive" businesses, and it is often difficult for even established companies to qualify for a loan, unless they possess highly valued intellectual property protected by patents. Banks typically will also require a personal guarantee of a loan from owners of a startup business, so should the company fail, the bank will seek to collect as much of its loan as possible and the entrepreneur could lose more than he bargained for.