The sticking point in my mind for lending is that risk undoubtedly varies by industry. It's not really very sensible to force banks to lend money to businesses without considering what industry they're in. At that point, how do you differentiate a sensible underwriting decision from unfair discrimination?
Pretend that a batch of YC startups are all getting loans rather than ownership purchases. What effective interest rate are they paying? What is the default rate where the startup dies before acquisition/profitability/IPO?
Write a heuristic to determine a fair interest rate given the current prevailing rates, financial history of the company in question, financial history of similar companies, and similar objective and quantifiable subjective factors. Document it. When someone complains, demonstrate to your regulator that your procedure was fair, reasonable, and applied evenhandedly, and to the extent possible is consistent with actual outcomes.
I'm not sure what you're getting at here. Any new batch of startups is so risky, I can't imagine a bank lending them a cent at any non-usurious interest rate until they've been in business for a few years.
Sure, but not without a personal guarantee from one or more of said executives, I would imagine. At that point, it's effectively the bank lending the money to the exec though, and not lending to the company.
That is the point. They should have numbers to show which industries get rates, and targets that a company meet (how is an open question - it might not be possible) to move to a different rate - either up or down.
That leaves only illegal black markets where those involved avoid banks anyway because banks report activity to the local government. (illegal money laundering schemes do use banks, but there are numbers for banks to use even if they don't know about the illegal side of the business)
Once in a while there is a brand new industry, but they tend to start small enough that banks can figure out numbers before the risk is too big to worry about.
