Need Financial/Legal Advice on Funding Business Growth....

[8 SNAKE]

Originally Posted by GoCUBS1

Thanks for the advice... I have triple checked the paperwork and spoke to my attorney and there is not a personal guarantee on the Note. So that's good. The bank (a major U.S. bank BTW) just wants the loan secured with properties which is legitimate. But I'd like the money unsecured. I am meeting with the banker to see what leverage we may have.

Good to hear there are no personal guarantees. The reason that I mentioned it was the following excerpt from your original post, which I perhaps misinterpreted.

Originally Posted by GoCUBS1

Before we sign any personal guarantees for our business, should one of us withdraw corporate ownership in order to mitigate risk exposure/protect other personal assets?

If you don't mind, please let us know how you end up structuring a deal with your bank. I am sure that you'll find a good solution for all parties involved.

[GoCUBS1]

Originally Posted by 8 SNAKE

Good to hear there are no personal guarantees. The reason that I mentioned it was the following excerpt from your original post, which I perhaps misinterpreted.

No, I misinterpreted the transaction. I had just assumed there was a personal guarantee and was ready to fight the bank on this until I actually looked at all the documents.... They're only looking for my property and rental income assignment as collateral...

[GoCUBS1]

Originally Posted by 8 SNAKE

If you don't mind, please let us know how you end up structuring a deal with your bank. I am sure that you'll find a good solution for all parties involved.

Here's the update from my bank conference call this morning...

Spouse and I played good cop/bad cop (why am I always the bad cop?!).... Of course, I wanted the deal structured so that my properties were not used as collateral but, of course, they wouldn't go for it... We can't get the loan based only on our current receivables and would not put up other funds (e.g. IRAs, etc.)...

So, I tried to negotiate on terms and interest rates. Here is where it stands now (we have not signed any ppw). The bank will extend the amortization from 5 years to 7 years (with no additional fees). The interest rate is prime + 2% - currently at a 7% minimum which I feel is competitive as I have shopped this around a bit. There is an annual renewal where we can assess debt against receivables/re-assessed property values and go through process for releasing collateral properties from loan.... I asked for the contracts to include specifics/ratios for releasing assets, but the bank refused saying this is never done as there are too many factors affecting this process (BTW, we have built up a pretty good relationship with this commercial banker over the years). He also said (like Chet mentioned) that the bank wants to get my property off the books also as they want to reduce real estate exposure and base the loan on receivables.

BTW, the bankers also told me that I want to send "the right message" to the "higher-ups" that I believe fully in my business model and will put my assets behind it.... Blah, blah, blah.... At which point, I used the exact verbage from this thread regarding bringing in assets from another business that balances out risk/income variations.... (So I do listen to some of your advice - THANK YOU for that... )

So here I sit, trying to decide if I should make this leap to take advantage of major market opportunities and grow a business that I believe in 100%. On the plus side, in this market, sales are up and I am able to secure a substantial loan from a major bank at 7% with no personal guarantees... Decision time...

[8 SNAKE]

Originally Posted by GoCUBS1

There is an annual renewal where we can assess debt against receivables/re-assessed property values and go through process for releasing collateral properties from loan....

Question for you. Can that annual review work the opposite way if your property values somehow decline? In other words, can you be required to put up more collateral if the current ratio of collateral to debt falls?

Not that it's a major sticking point, but how are the future valuations to be done?

Honestly, you sound completely confident in your business and its future and this plan seems like a solid way for you to grow and expand your company without putting up any personal guarantees. If there's a better option, I'd love for someone to jump in and tell everyone about it.

[GoCUBS1]

Originally Posted by 8 SNAKE

Question for you. Can that annual review work the opposite way if your property values somehow decline? In other words, can you be required to put up more collateral if the current ratio of collateral to debt falls?

Not that it's a major sticking point, but how are the future valuations to be done?

Honestly, you sound completely confident in your business and its future and this plan seems like a solid way for you to grow and expand your company without putting up any personal guarantees. If there's a better option, I'd love for someone to jump in and tell everyone about it.

Thanks for being a sounding board...

This is the best option I can find... unless someone on this forum wants to give me cheaper money? LOL

We have scheduled reviews in January and July though we can review at any point. I know everyone says this, but I honestly believe the properties will not decline much as, overall, they are in a very stable, growing area. They want 6 properties as collateral with approx. 50% loan-to-collateral ratio. I'm still going to try to remove one property from the loan (the one with the most equity) though it is unlikely they will go for it...

I see nothing in the contracts about putting up extra collateral if the ratios change but there is certainly the risk the bank would go after this. The contracts do explicitly exclude ever using 401K/IRA as collateral though (not sure if this is standard practice). There also is some flexibility in extending the amortization (e.g. bank can extend from 7 yr to 15 yr if interest rates peak).

Of course, my goal is to take this money and build the best service business in Chicagoland so that our receivables are so high that banks will line up to give us money. So this afternoon, I'll probably sign the paperwork for the biggest loan of my life.... I may need a drink after that one...

[8 SNAKE]

Originally Posted by GoCUBS1

Of course, my goal is to take this money and build the best service business in Chicagoland so that our receivables are so high that banks will line up to give us money. So this afternoon, I'll probably sign the paperwork for the biggest loan of my life.... I may need a drink after that one...

I don't have any doubts that you'll do precisely that with your business.

If I may ask, what kind of service business do you run? Feel free not to answer if you would prefer to keep that info private.

[GoCUBS1]

Originally Posted by 8 SNAKE

I don't have any doubts that you'll do precisely that with your business.

If I may ask, what kind of service business do you run? Feel free not to answer if you would prefer to keep that info private.

I can't give away my secrets publicly.... I now have a huge loan to pay off! Speaking generally... we are a product sales and service business. We sell B2B products that are manufactured in the U.S. We have exclusive deals on products used in multiple vertical markets. We also sell custom systems that can only be serviced by trained service techs. This service market is expanding due to new govt. regulations as well as trends in outsourcing. Our service techs are in high demand. We need to develop better infrastructure to support this and increase service sales/marketing to penetrate new markets.

[8 SNAKE]

Now that the stress of the loan is over, you get to start the fun part of expanding your business.

Bottoms up!

[Richard777]

It is a shame that you can't do an unsecured business loan. It is the way to go when you need the cash for your business quick. I know it is a high interest rate but it is worth it!

Good luck!

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