Aug 10 2011 by Brad

Shulman: Should Founders Personally Guaranty Bank Loans?

The VC post of the day is from Zack Shulman (Cayuga Venture Fund) titled Should Founders Personally Guaranty Bank Loans?

If, as an entrepreneur, you’ve raised any institution money, the answer should be – as Zack explains – a decisive NFW. In addition, your institutional investors are likely prohibited from doing this by their fund agreements.

I’ve explained publicly to many of my government friends why the SBA is totally ineffective around lending to high growth, venture backed companies. Their requirement for a personal guarantee from the founders and any owners (including investors) of over 20% of the company is another reason the SBA is a total fail when it comes to lending for high growth companies.

Fortunately, there are some great banks – like Silicon Valley Bank and Square 1 Bank – who understand how high growth companies work. However, the bilions that programs like the SBA theoretically allocate to high growth companies through programs like Startup America could be much better suited to simply giving to SVB and Square 1 to invest. But that’s a post for another day. In the mean time, if you are an entrepreneur in a high growth company, focus your energy on SVB and Square 1, not SBA lenders.