Banks generally don’t loan money to an unfunded startup without a credit history and without assets to offer as . Similarly, bank loans for more mature private companies often contain financial that restrict access to capital when the financial condition of the company deteriorates, which is exactly when the funds could be most helpful.
So when are bank loans useful? Bank loans can be very useful for managing cash flows for companies that have assets (e.g., accounts receivable or intellectual property) to offer as collateral. In certain circumstances (usually where a lender has a relationship with a company’s existing investors and has confidence that future funding will be forthcoming), bank loans may be available to extend a company’s cash runway prior to raising additional equity financing.
Moreover, we recommend establishing a relationship with a bank that understands and values technology and life sciences companies before you need a bank loan. Your company needs a checking account, and these specialized banks will value your relationship much more than the bank down the street. Over time, your bank can learn more about your business and help you understand when and why a bank loan may be most useful.