At the starting of 2021, the founding father of SaaS – let’s call him Alex – found himself in a known but dangerous position. His team has just implemented his first company clients, and a serious contract was near signing. Pitek landed, the client committed orally, and the contract would double.
But payroll wages, and the runway disappeared. Alex turned to his bank and raised a loan of USD 250,000 under his name, supported by a personal warranty related to his apartment. The logic was easy: the contract was coming, and it was only a short -term bridge.
This contract has never been closed. The master left. Legal stuck in a deadline. Six months later, the startup disappeared. Alex remained with a debt, without a company and without revenues, but a very real personal responsibility.
This scenario is repeated greater than the founders would really like to confess, especially during the slowdown in financing. Debt, especially Guarantee debt, seems attractive: it is fast, invisible and appears to be validation. But if specific conditions are not met, it may collapse quickly.
The debt takes place in startups, but only under the right structure, circumstances and time.
Debt at the growth stage: revenues must be real, not potential
The basic requirement of each loan is repayment. It depends on the predictable, repetitive revenues, not forecasts, not in anticipation of contracts. The debt is best served when your money flows are consistent and the individual economy is proven.
Debt at an early stage: only in certain circumstances
In the case of projects at an early stage, the debt works best when it drives a specific need, often a short -term capital gap. While most startups at an early stage do not qualify for debt on traditional terms, some banks provide access if the startup is supported by the highest level VC and transmits rigorous care. In these special circumstances, the lack of private guarantees and the presence of strong investors support create a more profitable, less dangerous structure. Despite this, this capital must be used strategically, not as a rescue line, but as a short -term solution.
Read a small print to avoid a disaster
It must be remembered that the debt is older for other financial instruments, corresponding to own capital. Debt holders can be paid first before any investor, which implies that investors also do not like to satisfy with an excessively schedule, especially at early stages.
Personal guarantees are a formula of a personal disaster. Replacement loan agreements, which frequently transform into capital, are a good means, although it is best to at all times prepare for a scenario in which investors determine to not convert, in this case the debt.
The debt should be assessed not only in terms of what it provides today, but also for how it can limit your decisions tomorrow.