What are the pros and cons of getting a bank loan?

Getting a loan from a traditional bank (not venture debt) is one way to finance a new venture. Many small businesses take out a loan from a traditional bank, but not many venture-backed startups do so.

The cons of receiving a traditional loan include the following:

• Interest is due periodically, meaning the company has to have cash flow from the start or keep some of the loaned funds in the bank in order to pay off the interest.
• A traditional bank will often only make loans to businesses that spend the funds on tangible goods (i.e., equipment or real estate) that can be used as collateral for the loan. Most tech startups don't spend much on land or equipment, and so may not be eligible for traditional loans.
• A founder may have to co-sign a loan to their business, putting their personally owned property at risk if the business fails.

Despite the significant risks to taking out a traditional loan, for some founders the pros may outweigh the cons. The pros of receiving a traditional loan include the following:

• Founders are not diluted by a loan. If the lender does not also request warrants in the company, as is the case for most venture debt, the upside to the lenders is capped at the interest and all other growth of the company accumulates to the company's stockholders.
• The U.S. Small Business Administration can offer competitive financing rates for traditional loans, though the process of applying for and receiving an SBA loan is lengthy.

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• How should my company structure its financing?