Debt funding has probably existed since the beginning of time. Shoe Dog, the memoir of Phil Knight, the founder of Nike, essentially debt funded his business with the banker down the street. As the business grew, it needed more and more debt. The banker was sweating and probably not sleeping and Phil Knight wanted more and more debt so the business could grow. In the end, going public was the only option.
A lot has changed since
In the garment center, we used factors who would give you the OK on an order and by doing that ensure that you got your payment within 30 days or if the companies stiffed you, the factor would pay you the amount because they have validated the paper. Of course they took a cut of each order so the odds were in their favor.
States and cities are beginning to invest in start-ups along side of venture groups that meet their criteria from the vertical to female-founded companies. I get it but I am not convinced it makes any sense because the chances of the city or state getting into a good deal and actually seeing large returns or any at all seem slim.
Why couldn’t the city or states become debt funders of growing companies with big orders?. Let’s say a CPG company that just got into all of Walmart and needs to make the products could go to the city or state for debt loans. The FDIC gives it the sign-off and the city or state makes 3% on the transaction. That is clearly a way to put money into the city/state vs. just taxes.
It becomes a win-win for everyone. Businesses grow, they don’t give up equity to build products, they can hire more people and feed the economy and the city/state took part in making that happen while making some money at the same time just by loaning capital.