[jkaplowitz]

Even in the United States, most small business loans require personal guarantees which narrowly override the corporate limited liability to make that guarantor liable for that debt if the company doesn't pay. There are some rare exceptions, and possibly more for startups funded by big-name VCs, but I don't know.

[Scoundreller]

But this isn't a small business loan: it's a debt to Amazon.

[dragonwriter]

I read that as the business owner had a preexisting business loan with a personal guarantee.

[namdnay]

Except the loan money will go straight to Amazon, and you are now unable to repay the loan to the bank

[vetinari]

Where exactly does the bank enter the picture?

Scenario 1: Amazon will ask for the payment (if using cc); the bank will respond there are no funds in the account; Amazon deals directly with the company further directly, not with the bank, eventually getting payment order from the court. If the company went bankrupt meanwhile, Amazon might not get their money.

Scenario 2: Amazon will send the invoice; invoice will not get paid. After due date, Amazon will contact the company directly; bank doesn't even enter the picture, until collection order comes from the court. If the company went bankrupt meanwhile, Amazon might not get their money.

There's no scenario where some hypothetical loan would go straight to Amazon, unless Amazon has some instrument, that instruct the bank to pay them. Something like bank guarantee or promisory note, and uses them before declaring bankrupcy.

[Talanes]

I think they were referring to a scenario where Amazon is draining the funds that have already been loaned. Thus Amazon already has their money, and the bank is the one coming after you during bankruptcy.

[vetinari]

Not sure how it works in OP's country, but where I live, when you get a loan, you will get a new account. As you draw the loan, you are getting into negative balance; how far you can go is the limit of your loan. As you pay back the principal, you are getting back to zero balance.

So for Amazon draining loaned money, they would have to transfer them to a normal account and pay with debit card paired to that account, with no limit set.

It is not wise to transfer them to a normal account; you pay interest for the balance on the loan account; if you move them to your normal account, you are paying interest for money that is sitting on your normal account.

[namdnay]

Wouldn't Amazon be draining a credit card directly? Tied to the account you received the loan on?

[vetinari]

If they used CC (not debit), then any payment would mean creating a debt, so yes, they would have to pay to the bank. Because bank already paid in their name.

That's why you don't pay large sums with CC, but with invoice + bank transfer, and have a limit set on your cards, when you do.

[SpelingBeeChamp]

Can you explain that more clearly? What is the reason to not pay large sums with a credit card?

[Scoundreller]

Depends where Amazon ranks in seniority in bankruptcy (protection). You don't have to run out of money to file for it. Purdue Pharma sure didn't.

[garmaine]

I’ve worked in many early startups and I’ve never seen anyone use such a loan.

[jkaplowitz]

Were they in the US and funded by VCs? That kind of startup probably doesn't need to do this. Unsure about VC-funded businesses elsewhere. Many or even most small businesses without VC funding do take that kind of loan.

[IG_Semmelweiss]

You work at the 1%

The real world is filled with barbershops, daycares, bars, clinics, PVC manufacturers etc

None of them get VC money.

When they need money, they go to a bank and usually have to place a PG in order to get funds.

Tech startups have it easy. Its all equity. You are not pledging your lifetime earnings on a business idea.

Once tech startups lose their upside potential (prob not anytime soon if ever), you will be sitting with the regular folk, those that pledge their skin and life to their business.