Such companies may have strong growth prospects, but what they don't have is the real estate or other collateral to put a sparkle in a bank loan officer's eye, which imposes a sharp limit on how far indirect financing can meet their needs. Let's look at the conditions under which entrepreneurial companies seek funds in the startup period. Venture companies typically go through a long research and development period before an idea becomes commercially viable. Naturally, the company will have no sales and will be operating in the red during this period. Its ability to make payments on principle or interest is zero, zilch.
Most new startups have nothing to offer as collateral.
Real property accounts for a smaller proportion of assets than would have been true a generation ago. Moreover, unlike a few acres of land, software and other intangibles tend to need continual upgrading to retain their value - yesterday's hot program may be eclipsed by tomorrow's competitor with its new bells and whistles. The risk of failure is high. And even if all that effort does generate a product that seems marketable, whether the market will be receptive remains hard to predict. But they have high growth potential.