Having spent 5 years at SVB UK before joining Bootstrap Europe as a partner, the recent news of Silicon Valley Bank’s collapse has been heartbreaking. As entrepreneurs and investors spend the weekend firefighting, I wanted to offer some practical ideas to help companies with loans and deposits at SVB.
Having a loan with SVB usually meant holding most of your deposits there as well. If you have found yourself in a cash crunch due to not having access to your SVB bank balances, you might be exploring other emergency financing options. You should be conscious that taking on additional debt would typically lead to defaulting on your current SVB facility — which you should try and avoid. A couple of options could help you solve this:
- You should read the Permitted Indebtedness section of your loan agreement, this will describe what facilities you are able to put in place without seeking SVB approval.
- It can often happen that shareholder loans that are subordinated to SVB are permitted, if that is the case your shareholders could provide support by ensuring that the drafting of the convertible loan includes subordination provisions.
- Setting up a SAFE (Simple Agreement for Future Equity) can be an elegant solution, as a SAFE is not a debt instrument it can enable your shareholders to fund the business until the dust settles, while avoiding any default on your existing facility. These agreements tend to be simple and short, with plenty of templates available online such as the ones from Y Combinator.
Each agreement is different and some of the above options might not work for your specific loan. If you are unsure of what the language means in yours — your lawyers should be able to help.
The future of SVB’s loan book has yet to be decided and while SVB has a culture of being understanding with defaults, it is hard to say what will happen next.
If you are working on a new time-sensitive venture loan, you can find some additional help here or feel free to reach out to us at [email protected].
Together, we are stronger.
Eliott Saba
