I am trying to secure a loan to move my post business out of my home and into an office. I am wondering how anyone out there got a loan/investors? I know the current situation with the economy is KILLER, but I was hoping someone knew of some secret to securing a loan for this type of business. 80% of the loan is for equipment and the rest is for legal fees/advertising. Are there any programs out there that someone would recommend?
Thanks in advance!
We've been in business for 12 years and we've gotten many loans, however, only recently have banks been willing to loan us money for equipment. The first 6-8 years in business, we had to use leasing companies to get equipment.
We did get a bank loan at startup, but it was for capital purposes only and the bank did check up and require us to document just about every thing we used the money for...so we couldn't fudge and use it for equipment purposes.
The difference in a lease and loan is that the leasing company required a security deposit (typically 10% of the value of the lease) and you end up paying higher interest (ours was typicaly 10-12% compared to 6-8% on the bank loan). Other than that they work pretty much the same. Our leases were structured so that at the end of the lease term, we had a $1 buyout. You also got your deposit back at the end of the lease term...although we typically requested it be applied to payments during the final year and the lease companies always agreed and did so.
Naturally a bank loan is a better deal with no deposit required and lower interest, but they also require a LOT more paperwork, better credit and a lot more security to back up the loan.
When we got our first loan, we had a full business plan, 3 other investors in the business (totaled about $27,500), another $7,500 in startup from 3 principals, a lease agreement for roughly $110,000 worth of equipment, and about half-a-dozen letters from potential clients stating they were ready to use us for services as soon as we were up and operating.
Only one bank in town was willing to give us a loan for startup even though we had all that in place...and the only reason they were willing is because one of the larger investors knew the guy that ran the business loan department.
So bottom line, you have to show the bank that you're viable and will have business and revenue to pay back that loan. Another option is to back it up with your house, car etc. Taking out a second mortgage is an easy route to getting money, but you put your home at risk should something happen to your business.
Hope that helps.
Magnetic Image, Inc.
[Chris Blair] "Taking out a second mortgage is an easy route to getting money, but you put your home at risk should something happen to your business."
I do not know your circumstances but it sounds as if you are just starting out. I do not want to dash anyone's dream but if we had a dollar for everyone over the years who has used these forums and has dreamed about getting into an editing business -- but doesn't already have the kind of clientele that has currently been paying for their equipment -- Kathlyn and I could retire.
There is a glut of editors today. When we started in this industry, there was one in our whole county -- us. The next company, CafeFX, was just over the line in Santa Barbara County. Now editing businesses proliferate like garbage bands, damned near one on every block. Not to mention every kid with a computer and a $200 camcorder is now an editing business and their uncle seems to run the company that once used to buy real production services but now uses The Kid.
Who have you been working with already? Who has been using your services so far? If the answer is nobody, find another business to get in to. Do yourself a favor run from this one. As Grinner says, stay only if you have to because there is nothing else in life you want to do and you have to do this.
Borrowing to advertise? I wouldn't advise it. If you take the time to read many of the pre-existing threads discussing advertising and ways to generate new business, you will find that advertising is almost always a non-starter in today's market. It still comes down to who do you know or taking the time to get out face-to-face and get to know them. And by knowing them, I do not mean getting in their face and telling them all about your business and how good you are and that because you're new you will even give them a deal. That won't work. You must research companies, areas where they are strong and where they could use your help and you must talk to them about them and the area where your expertise will shore up one of their weaknesses -- and prove to them that based on what you do, it will make them money. If you can't do that in today's market, well, to use the vernacular, you are hosed.
Lastly, this is a horrible market to be in in good times and in bad ones? Forget it. Again, follow the Grinner Principle and run from this business and only stay if you will go insane if you cannot be in this business. Anything short of absolute conviction, passion and insane dedication to this and you won't have much of a chance of success.
I hate to be so blunt but when you have seen as many people start out starry-eyed and innocent and watch them crash into the proverbial wall with all hopes dashed and losing everything in a fire sale of their dreams, I have to be straight up with you.
Ron, man... Definitely blunt. I would assume that you would want every kid with a laptop in your market. I could only imagine them making your product and company look better.
I have been doing this for eight years, and I have the clients to support a business. As far as advertising goes... yes, I need to advertise. My niche is small, and none of my clients are local. There are trade magazines that I need to be in.
I don't plan on running from this business. I have been doing it for a pretty good amount of time, I love my work, and I love my clients. Maybe it's different for me, I don't run a production business, I run a very small niche production business. No, I couldn't see myself shooting car/furniture commercials everyday, but what I do shoot definitely is my passion... and it pay the bills quite nicely.
So, do you have any advice as to how to get startup?
Meijin Media LLC
One thing I would add is that we received startup money from people we never dreamed would be interested in helping. Like Todd, one of our investors was a woman who owned an ad agency who was already using me extensively for production work while I was at a TV station.
The other two investors were unlikely sources. One was the brother-in-law of another partner. He offerred to invest during a casual conversation with my partner. The other was the sister and husband of my other partner. Who also offerred to invest after a casual conversation about out plans. Naturally, both of them read our business plan and met with us all one time before actually giving us the money...but in both cases, we did not seek them out, yet it resulted in nearly $20,000 of startup capital.
So my suggestion here is to NOT overlook the obvious...friends and relatives. I've heard all the advice about not borrowing or investing with either, but in our case, it worked out just fine and we were VERY upfront with them about the risks involved, and were upfront about this being a business deal and not a family one.
I should also point out that 2 of the 3 investors actually gave us loans at 9% rather than receiving ownership We paid back those loans over the course of 4 years. At the time, 9% was way better than what they could get from any sort of bank investment, and nearly as good as most mutual funds. Each person made about $2500 in interest income from their investment over that time.
I will also point out that although we had an equipment lease for $110,000 and startup capital of about $55,000...it was nearly not enough. Between about 9-18 months, there were some very worrisome weeks where we weren't sure if we were going to be able to write ourselves paychecks, and we floated expenses and bills to the very last day possible. After about 18 months, cash flow got to a point where it wasn't week to week, but it was VERY stressful during that 9 month period.
Some things we DID NOT account for in our business plan were:
1. The tremendous amount of time and effort it takes to market yourself and put together client quotes and pitches.
2. How the absence of administrative people (we both came from TV stations) affected your ability to get things done. We weren't used to having to type up letters, quotes, do billing etc. We always had other people that did that.
3. The fact that while you're doing all that new administrative and marketing stuff, it takes away from the time you're able to do billable work. In fact, we estimated that if we worked a 50 hour week, there were only about 32 hours left that we could book clients for shoots and edits.
I've rambled long enough...but the last thing I'd say is read all the business books out there you can, but do so with the knowledge that most are full of crap. I must've read 25 business startup books and while each had some good information, most were out of touch with the market, and many gave flat out bad advice.
Trust your instincts if they're strong, ask advice on forums like this, and believe in yourself. But do so with a plan in place, with a realistic budgetary plan, and PLENTY of capital to get you through the first 12-18 months.
Magnetic Image, Inc.
My brother and I started our production company about 5 years ago with $5,000 cash, a Panasonic dvx100a and that's about it. We've never borrowed a dime from any outside source, have been in the black since closing out our first year, and have doubled our revenue every year since opening our doors five years ago. We're lean and frugal and have learned to make more with less, and I'm supremely thankful for that now when I see our profit margins.
You don't need $110,000 worth of gear to start a production company, especially if it's a smaller, non-broadcast niche. You just don't. For post, get two mac pros with FCP/Adobe products, and you're looking at $15,000. Rather than buy, rent your video gear on a shoot-by-shoot basis. Think this sounds silly? So does going bankrupt while sitting on a pile of pretty gear that, like all technology products, is worth half what you paid for it.
You also don't need $50,000 worth of advertising, building space, pencils, phones etc. You can, contrary to the egoncentric's guide to start-up mythology, start smaller and grow once your revenue proves you've earned the right.
In fact, the more you borrow and spend now, the less likely you will survive beyond year two as a company, because you completely lose the ability to weather slow months. And trust me, you WILL be weathering some slow months - not just because of the sagging (crashing) economy, but because it takes a few years for any production company to get really established and keep the phones ringing. Even after a few years, slow times are part of the production game.
No doom and gloom here, but seriously - you do not want to find yourself choosing whether to pay your rent/employees OR pay the many thousands of dollars to service your various loans. The fancy workstations you lease will always be a financial noose in slow times - drawing no income, large monthly debt payments, total inability to sell them in a real pinch. It's almost like having an adjustable rate mortgage loan in today's real estate market.
What you DO need, as Ron pointed out, is a willingness to do anything it takes to make it happen, and it would be wise to at least consider working with the money and resources you already have, aka bootstrap it. For the record, 90% of Fortune 500 companies were started with little or no outside funding.
The situation might not work for everyone, but I secured a loan to start my business 11 years ago by working with a partner. She owned an advertising agency that would benefit from my production company (actually, that agency was our first and for a while our only client). She is well-heeled (could have easily funded the company herself, but didn't choose to) and basically co-signed for the loan. Within our agreement, she owned half of the company (actually 501 out of 1000 shares) until the loan was paid off (it was a three year loan) when the shares in the corporation reverted to me.
She got no direct profit from being an owner, but rather her agency profited by having its own production company. Work for her agency though was treated like any other client... budgeted and billed at the same rates... but she also got the benefit of being first in line and having a guaranteed source of good afforadble production for all of her television clients.
Also, as Chris said, if you have personal property to secure a loan (house, etc.), that's one way to go if you are COMFORTABLE doing so. Rather than an actual "loan" a HELOC is probably the way to go (Home Equity Line of Credit). It basically becomes a "fund" that you can use or NOT use as you see fit, and you are only required to pay the interest on the balance each month... which can be helpful if your cash flow is not constant. I would only do that though if you are absolutely positively sure it will not be a financial burden (for example, if you have guaranteed contracts for work that will more than comfortably cover the payments you must make). You certainly don't want to lose your house.
Also, as Chris said, leasing is an option. We have never leased equipment (only vehicles), but have considered it. There are tons of equipment leasing companies out there. The downside is, that it is a bit expensive... you'll be tempted to ask them "What's the interest rate?" They won't tell you. They'll say "There is no interest rate, it's a lease not a loan." But you can look at the payments and figure out what the effective interest rate would be, and it's usually much higher than a loan to buy the equipment would be. On the upside, you can directly expense evey penny of a loan payment, whereas if you buy equipment you must depreciate it over time. End terms of leases vary, too... with some, at the end of the lease you give them back the equipment. With others, you buy it for a low amount... a dollar, or whatever. With others, you have the options to buy it for the market value. With computer-based equipment (NLEs, etc.) that can get a little tricky as the actual market value of the equipment might be quite low after the lease expires although the actual value to you of the equipment is still high.
Fantastic Plastic Entertainment, Inc.
Some Community Development Credit Unions (learn more here: http://www.natfed.org) and credit union supported/related organizations have special loan programs designed to help small business start-ups that improve the quality of life in their neighborhoods. For instance, here is one in your city, San Antonio: http://www.acciontexas.org/
If you cannot find this type of chartered credit union near you, I suggest trying a “mainstream” credit union whose charter includes business members.
Bennett Marketing & Media Production, LLC
First of all, the devil is in the details. Your post is a bit confusing on several points.
1. You say you want a loan to "move" your business from your home to your office but later in the post you say 80% of the loan will be for equipment purchase.
2. You say you want to move your "post house" but yet your web site is clearly for a full production company.
3.In a response to Ron Lindebloom you say you have been in business 8 years yet on your web site you state you have been in business "over a decade".
It just doesn't sound like you have a clear idea about who your company is, what your needs REALLY are, or where you see this going. On one hand it sounds like a simple move from your home to an office. But when you dig in a bit, it's hard to know exactly what you're asking. This will be a red flag to any lending institution or possible investor. If you don't already have one, I would write a very concise business plan.
In answer to your question. Unless you have solid collateral like a home, your chances of securing a loan in this economy are slim. I just locked down my business loan after floating things through an established line of home equity. Also, find a bank that didn't get caught up in the sub prime mess. There are banks out there that are doing well, you just have to find the right bank and the right loan officer.
Higher Ground Media
We are moving to an existing facility owned by my family, so the need to include moving expenses/lease is not the case with us. The information about being in business over a decade is because there are two of us with over 12 years experience in our niche. I should put "Over a decade of experience, collectively".
We are primarily a post house at the moment, once we are able to purchase cameras we will begin production.
Please don't read too heavily into the website. It has not officially been launched and it is still in developmental stages. It changes almost daily.
I have done quite a bit of research in lease-to-own through TEAC (Duplication) and Sony (cameras), and I think that this may be the best option. They both offer low "interest rates".
I appreciate all of your advice, and I will take it to heart.
Well there ya go. Walter has some good info on leasing in his article about starting a production company. I looked into leasing myself and didn't like the interest rates. I admire your confidence in expanding a business in this economy. I too have a niche company that is doing pretty good right now. Just try and keep that overhead LOWLOWLOW!!!
MICK (not Mike, Mitch, Nick, Mark, or Rick) Haensler
Higher Ground Media
Thanks Mitch! just kidding, Mick...
Yes, the economy is killer right now, and if I did not have such a tight niche, with a great client base, I wouldn't touch this with a ten foot pole. I really appreciate everyone's help, and I will let you know how it goes. Thanks again!
YOU are your biggest overhead. Make sure you have AT LEAST 3 months of salary saved and AT LEAST 3 months of business overhead in cash. Also have AT LEAST 3 months of personal savings for backup. Better to make it 6 months. If this sounds tough, this is what the bank is looking for. They don't take unnecessary risk. So if you want to take home $5K a month, have $30K+ in a money market.
17 years ago we got a loan with only the equipment as collateral - that was handy.
And I totally agree with Brendan about renting gear. At times I think it sounds expensive, but not having payments or upkeep is a good thing.
Being rich has nothing to do with wealth.
Credit a great business plan and a tie is the norm.
That said, don't do it. Debt being your biggest foe in business, I have found it best to side step it.
Truth is, a loan is not required to move into a commercial building. You're talking furniture and that's just a matter of selecting the right garage sales.
I speant just over 10k moving into my building and pimping it accordingly. When I got tired of the stress/overhead, I literally sold all that stuff for around 600 bucks.
Now it's just me, my camera and my edit suite. If a booking doesn't happen, that's a cool day off. I did not have that luxury with a phat overhead.
If you must stretch your wings, do it without a banker.