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0 pointsAnon10964mo ago0 comments

For one, in a mortgage the loan is secured by the house. But more importantly: you can get simple loans for startups too! Banks provide loans that are personally guaranteed (ie if the business goes under the founder is still on the hook). But if you want more money or something that is limited in liability then your pool of people willing to give money is much smaller and they usually want a stake in the business as a condition.

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ffsm84mo ago

The opposite argument would be that the default should behave like the house then, so ownership should switch over to the person providing the loan entirely - instead of passing on part ownership forever.

But that's obviously less desirable to the person providing the money, and they've obviously got all the cards... Hence the argument of this post.

I wouldn't call it evil myself, unless I wanted to classify capitalism as evil in it's entirety - which would feel disingenuous to me, considering the alternatives were always worse in hindsight.

labcomputer4mo ago

You aren’t thinking this through. If a startup defaults, it is because they have no money left (which is because they do not have a viable business yet). So there is nothing of value to repossess.

This is the same reason the bank asks for an independent valuation of a house (and requires the buyer to maintain insurance) before releasing the money to pay for it: The value of the collateral needs to plausibly match the value of the loan, so that the value of the loan can be recovered in case of default.

The only way this works is for the founder to personally guarantee the loan. Which means the founder needs to have sufficient personal assets to keep the bank happy. It also means the founder risks personal bankruptcy if those assets are not enough to cover the loan if the startup defaults.

ffsm84mo ago

Naw, you're making a claim that's just not true.

The company will have some value left on default. E.g if it's a software company it will have the IP for the software etc pp

Now wherever that's enough for anyone to be willing to take that risk with the loan is another story and thus I could now quote my previous comment in its entirety

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ffsm84mo ago

But that's obviously less desirable to the person providing the money, and they've obviously got all the cards... Hence the argument of this post.

I wouldn't call it evil myself, unless I wanted to classify capitalism as evil in it's entirety - which would feel disingenuous to me, considering the alternatives were always worse in hindsight.

labcomputer4mo ago

You aren’t thinking this through. If a startup defaults, it is because they have no money left (which is because they do not have a viable business yet). So there is nothing of value to repossess.

ffsm84mo ago

Naw, you're making a claim that's just not true.

The company will have some value left on default. E.g if it's a software company it will have the IP for the software etc pp

Now wherever that's enough for anyone to be willing to take that risk with the loan is another story and thus I could now quote my previous comment in its entirety

2 more replies

j / k navigate · click thread line to collapse