Tech Companies – Not For Your Grandfathers Bank

One of the questions I see the most is “why are banks so reluctant to loan to a technology company?”  Where there are several answers for this, but the main one is “they don’t like things they can’t get their hands on.”  Banking today has come far from what it was 10-15 years ago.  Mobile banking is starting to take shape, online accounts are at an all time high, and electronic transfers are becoming popular among all age groups.  So why are they still afraid to loan to a tech company?

Tech companies break most of the lending rules when it comes to banking.  There often are no tangible products, assets are minimal at best, the balance sheet often looks upside down, and there are instances where there is absolutely no Accounts Receivable.  This also happens to describe many of the healthiest companies on the planet right now.

Accounting rules are largely written for companies who make money by selling services or widgets.  The people who create the accounting standards worry way too much about accommodating banks and financial institutions.  Although the world of finance and accounting would be a much better place if banks were to follow more generic rules, that’s not likely to happen.

I recently read that the SEC’s Advisory Committee on Improvement to Financial Reporting has come up with a solution, eliminating industry-specific guidance.  I seriously doubt it’s going to make the banks stand up straight.  It will most likely help my job at AspenTech out by simplifying the Revenue Recognition for software companies.  I’ll take what I can get!

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