Recently, several students from the Babson College MBA program called requesting an interview. They were researching the venture debt market and wanted an insiders view of how this segment compares with venture capital. Their questions were thoughtful and I thought the discussion was worth sharing.

Small businesses and startup companies often have limited options when it comes to quickly generating cash to support a sudden growth surge. Banks are reluctant to lend to companies without strong credit histories, and investors usually want a big chunk of the pie.

If you’re selling products and services, one way of raising capital would be to help your customers get the money to buy your products. Think about this: If you sell a large piece of equipment that costs a million dollars, and your customer doesn’t have a million dollars, and your customer’s bank doesn’t want to give him a million dollars, you might have to come up with a financing alternative to help him get the money so you can make the sale.