Tech Lending: Why Are Tech Companies So Hard To Value?

This article is the first in a series providing an overview of critical considerations for commercial lenders contemplating whether to finance a tech company and how such loans can be secured.

Historically, commercial lenders have favoured lending to businesses rich in tangible assets that can be used to provide security for loans. However, commercial lenders have become increasingly interested in lending to tech companies. There has been an upward trend in the amount of cash flow-based and asset-based lending to the sector.

Providing debt financing to tech companies often presents unique challenges. Due to several factors, tech companies – especially startup and early-stage businesses – are inherently difficult to value. This difficulty can be a stumbling block for creditors trying to evaluate lending risks for a company. It can also make securing collateral to mitigate those risks more complicated.