Banks Focused On Startups Upset That Others Are Crowding The Loan Business

from the competition-sucks dept

There’s some fun language in this Red Herring piece about “venture debt” firms, but the reality of the situation is that banks that offer loans to startups are upset that other financial institutions are competing with them. Historically, it’s been quite difficult for a startup to get a loan, because the basis of most loans is your ability to pay the money back — and startups usually don’t have enough of a track record to make lenders feel comfortable. So, for the banks that do offer loans to startups, it’s often quite risky, and the rates can reflect that. However, with a new bubble forming, and with “hedge funds” (which often aren’t “hedge” funds at all) forming left and right — some of those funds are getting into the business of loaning money to startups. So, the competition has the traditional startup lenders (“venture debt firms”) pissed off that these hedge funds are driving down the rates. Of course, it’s amusing to see the bank guys acting so very concerned about the health of these hedge fund loans — as if that’s what they care about. They just don’t want the competition. Hedge funds often make risky investments, and they know that loaning money to startups is quite risky. Of course, I’m still curious what the “hedge” is on the other side of the loan, but it seems like the hedge part of many hedge funds has gone out of style.

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