After the down-votes: Look at this this way, you get 200,000 shares in an ISO when you start at this startup. The valuation gives you a strike price of say a 5 cents per share. Now two years later you have vested 100,000 shares and you are leaving the company, and the company has gone through another round of funding and the strike price is not 10 cents per share. The cost to borrow is : 100,000 * .05 or $5,000 and the 'gain' in value is also $5,000. You pay AMT on the gain of 35% * 5000 or $1,750 in tax (Which ESO didn't loan you). Now your company exits in an acquihire or something and you're common stock is worthless. You're out $1,750 in tax, except ESO forgives the loan they gave you, that is another $5000 in income you have to report and $2,500 in tax due. So At the end of this you're out $4,250. Win? (You do get a $3000 capital gains loss you can write off that year from your adjusted gross income, only covers a bit more than half the $5,000 fogiveness income. So maybe you end up paying only $2,750 in taxes. Oh and you had to itemize which meant you spent probably double the amount of time you normally do on your taxes.
That is what I mean by 'half baked', coming up with the funds to buy the stock is only half the problem.