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Loan or not to Loan?

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Tim Tschudin
Loan or not to Loan?
on Jan 23, 2009 at 3:49:16 pm

I need some advice...I've been working in the TV broadcast industry for nearly 20 years now and last month fell victim to the economy and was layed off. Fortunately I have a little side video production business that I've been doing for about 10 years now. Through the years I have purchased various equiptment and software. And as of today, everything I own is paid for. However, there are some big ticket items I still need to purchase. So here is my question, should I take out a small business loan or keep trying to save from the small jobs that are coming in? The only draw-back to saving is I need some of the equiptment in order to do the jobs.
I welcome your input!
Regards,
Tim



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Ron Lindeboom
Re: Loan or not to Loan?
on Jan 23, 2009 at 6:16:39 pm

[Tim Tschudin] "...everything I own is paid for...there are some big ticket items I still need to purchase...should I take out a small business loan or keep trying to save from the small jobs that are coming in? The only draw-back to saving is I need some of the equiptment in order to do the jobs."

RENT.

Rent the equipment you need until the cashflow justifies the purchase.

If you are getting small jobs, the likelihood that they will be able to pay for the cost of ownership, is remote.

While renting costs more in the long run, if you use and return the stuff quickly enough and only as genuinely needed, it will be far more cost advantageous than trying to buy it under your circumstances.

We have survived bad markets and circumstances that would have destroyed most companies by following that advice.

Yes, ownership is less costly -- if you can afford it. But there are times that renting is more fiscally responsible for a small business. I think from your description, this is one of those times.

Best regards,

Ron Lindeboom

PS: Not to mention that banks and other financial institutions are not really loaning money to anyone, other than those who truly just flat don't need it. But isn't that always the case?

:o)



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Mick Haensler
Re: Loan or not to Loan?
on Jan 24, 2009 at 5:54:58 am

How big a ticket are we talking. To me, 6 grand for my EX1 and a tricked out Macpro was pretty big ticket. For others that's a drop in the bucket.



Mick Haensler
Higher Ground Media


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grinner hester
Re: Loan or not to Loan?
on Jan 24, 2009 at 4:52:55 pm

Today, your biggest cost is an edit suite and, today, you'd be surprised how many edit suite owners there are in town who are willing to get creative.
You may find you can rent to own a suite with nothing down, test-driving it as you go on the clock.
The short answer is no, don't be gettin upside down to take a risk.
The deeper answer is, you already have.

So, getting down to the basics.
"Is risk worth it?"

That's part of what you love about it. Clip on a tie if I'm wrong.
;)



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walter biscardi
Re: Loan or not to Loan?
on Jan 24, 2009 at 10:58:20 pm

That's a toughy, but I have to say small business loans have been very good for me. We only do them sparingly as our company is more or less debt-free.

What I like to do is figure out what big ticket items I might need and then figure out if there are any other smaller things I'd like to get as well. Wrap that all up into one loan. I don't like multiple loans, I like to pay one off, then open another if necessary.

Also, I always take out the longest term I can get, say 4 or 5 years if available, just so I can have smaller payments when possible. Generally we pay off all our loans in 12 to 14 months anyway, but just in case there are lean times, we can pay the minimum fee if necessary. Oh, and make sure there are no penalties for paying your loan off early. if there are, move on to the next bank.

I just took out another loan in December to pay for a new shared storage system we've had installed in our shop. That was definitely more money than I would like to pay out at once and we'll have that paid off by the end of this year. But I got a 3 year term just in case.

For the most part I do try to simply buy stuff outright. Renting doesn't work for me except in the case of a DigiBeta Recorder or HDCAM recorder. Those are REALLY big ticket items and are much more cost effective right now to rent than purchase. I think in the 8 years we've been in business now I've rented 3 or 4 times total. It does work for some folks, but it's not something I'm interested in.

And absolutely positively stay away from leasing. My first system was leased and that was an utter disaster. Never again for me.




Walter Biscardi, Jr.
Biscardi Creative Media
HD and SD Production for Broadcast and Independent Productions.

Read my Blog!

STOP STARING AND START GRADING WITH APPLE COLOR Apple Color Training DVD available now!


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Mick Haensler
Re: Loan or not to Loan?
on Jan 25, 2009 at 12:06:44 am

Another route to consider is a secured line of credit. This is how I financed my business last year. Like Walter's strategy of long loan terms to keep the payments low, most lines of credit will allow you to pay interest only if times get lean. Just make sure you bump that back up when things get better.




Mick Haensler
Higher Ground Media


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Todd Terry
Re: Loan or not to Loan?
on Jan 25, 2009 at 12:42:53 am

Hey Mick...

Just curious, how did you secure your credit line?

I persued that a few years ago with zero luck. It was with the bank we have been dealing with for years, have banked with them forever, maintain a pretty healthy balance with them, had a previous loan repaid to them (early), have an excellent credit rating, and had really high accounts receivables on the books from reliable and well-paying clients... yet the bank was absolutely less than interested in even discussing a line of credit with us.

We were hoping to get a line of credit secured by either our capital equipment and/or accounts receivable just to improve cash flow during a time we were doing a lot of long-term projects that we had to wait to send invoices on. The only thing the bank would even halfway consider though was a credit line secured by me personally with my house... and I was not going to do that... while I am the majority stockholder of our company I do have a partner, and wasn't eager to personally have to secure the line of credit with my house for the corporation's benefit.

Any secrets on how you made that happen?

Thanks.....


T2

__________________________________
Todd Terry
Creative Director
Fantastic Plastic Entertainment, Inc.
fantasticplastic.com






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Mick Haensler
Re: Loan or not to Loan?
on Jan 25, 2009 at 1:14:40 am

Todd

I secured it with my house. I've been blessed to have gotten a huge old home for next to nothing ten years ago. I did most of the restoration myself which built a ton of sweat equity. Even with the downturn in housing prices lately, I was able to get a liberal line of credit. Even with the business line AND a personal line of credit, I still have $75,000 in clear equity. Right place at the right time I guess. Both my wife and I have our businesses out of the home which accounts for over one third of the total square footage keeping our overhead extremely low. Our debt to income ratio is very good which I think was key to securing a liberal line at 4.75%.

Mick Haensler
Higher Ground Media

Mick Haensler
Higher Ground Media


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Todd Terry
Re: Loan or not to Loan?
on Jan 25, 2009 at 2:22:23 am

Ahh I see...

Thanks, Mick... was afraid that was the secret.

My house is in the clear and I could have used it as security... just not interested in mixing the personal/corporate world there too much since I'm not the sole shareholder of the corporation.

Thanks...


T2

__________________________________
Todd Terry
Creative Director
Fantastic Plastic Entertainment, Inc.
fantasticplastic.com






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walter biscardi
Re: Loan or not to Loan?
on Jan 25, 2009 at 2:48:32 am

[Todd Terry] "yet the bank was absolutely less than interested in even discussing a line of credit with us. "

Hmm, that's interesting. Our bank gave us a line of credit on the spot pretty much after having an account with them for about three years. AMEX also gave us a really nice Business Line of Credit which they recently stopped the entire program, but we had that for about three years.



Walter Biscardi, Jr.
Biscardi Creative Media
HD and SD Production for Broadcast and Independent Productions.

Read my Blog!

STOP STARING AND START GRADING WITH APPLE COLOR Apple Color Training DVD available now!


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Todd Terry
Re: Loan or not to Loan?
on Jan 25, 2009 at 6:32:30 am

[walter biscardi] "Hmm, that's interesting. Our bank gave us a line of credit on the spot pretty much after having an account with them for about three years."

You must have had a better bank, Walter!... ours didn't seem to care much about helping us (or getting more of our business).

We should probably try again, with a different bank. We have several banks now that are our commercial clients... some gigantic, some small... maybe should hit one of them up about a credit line. In fact, one of our bank clients has told us they would easy breezy steamroll through a mortgage on a new studio facility we are considering... so I'm betting they would be more receptive. They are a hometown entirely locally-owned bank... not the jumbo conglomerate bank we were dealing with before.

Guess it depends on who you know.

Fortunately I think we know a lot more of the right people now, maybe we'll give it another shot. Cash flow always helps.


T2

__________________________________
Todd Terry
Creative Director
Fantastic Plastic Entertainment, Inc.
fantasticplastic.com






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Nick Griffin
Re: Loan or not to Loan?
on Jan 25, 2009 at 2:47:08 pm

Having a line of credit is simply good business practice as it allows you to stay up to date and consistent with your own vendors, sub-contractors, etc. There is no substitute for good credit and a floating line of credit which you pay down when times are good and withdraw from when times are lean is a potent financial tool.

Bank of America was only too happy to issue our line about 15 years ago. (Who knows, given present banking conditions, if that's still the case for small businesses and I'm hoping that our sterling history will make the next renewal go smoothly.) Our line is based on the "small business prime rate" which last month was 4.0%

What a line of credit is NOT for is financing large capital purchases like equipment or remodeling.

One other point: while there are many businesses whose start up capital came from the owner's personal credit card debt I would bet, that for every one which has eventually succeeded that way, there are a dozen who have ended in some variety of financial discomfort or disaster. Paying credit card rates of 18% or more is not a good way to get ahead. (IMHO.)

What I do like about credit cards are the awards programs. Like many other small businesses we pay with American Express whenever possible. We still have to pay the bill in full every month, but earn a few hundred thousand awards points a year to use for airline tickets & upgrades, toys, etc. My dentist gave me the idea when he confided that he'd taken his family to the Caymans on the points he'd earned by putting the cost of a few new dental chairs and related equipment on his personal credit card.


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walter biscardi
Re: Loan or not to Loan?
on Jan 25, 2009 at 2:51:39 pm

[Nick Griffin] " Like many other small businesses we pay with American Express whenever possible. "

Yep, we just started this in earnest last year, especially when shopping at Costco for the business. We put just about all business purchases on the Amex now so we can earn points. Like you we pay off the balance each month.



Walter Biscardi, Jr.
Biscardi Creative Media
HD and SD Production for Broadcast and Independent Productions.

Read my Blog!

STOP STARING AND START GRADING WITH APPLE COLOR Apple Color Training DVD available now!


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Ryan Cathey
Re: Loan or not to Loan?
on Feb 12, 2009 at 11:13:17 pm

So would it be wise in these times to take out a line of credit in order to fund some advertising and marketing campaigns? Clients are looking thin, as about half of them were in state funded education (California is falling apart) and have simply pulled completely out of spending with us.

It's time to hunt down new clients, I guess. I just want to make sure that I'm directing marketing funds in the right direction.



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Chris Blair
Re: Loan or not to Loan?
on Feb 13, 2009 at 4:17:40 am

I'm not sure I'd use a line of credit for marketing and advertising. We have a fairly large line of credit and we typically use it for operating expenses, especially with large client projects. Meaning, we have a shoot where we bring in 5 clients, they bring in 20 of their customers to be on camera. We put them all up in nice hotels and feed them for several days. Bam...we've spent $13,000 in less than a week. That's what we use a line of credit for. Stuff we know we're going to get back fairly quickly.

But...others might have another opinion. We do a little bit of marketing and advertising, but I bet 75% of our business comes from word of mouth, referrals and good old fashioned guerilla marketing, where you get out and talk to people at community events. We've gotten an incredible amount of business by doing free stuff for non-profits, who then either talk about us glowingly to their boards (made up of big corporate executives), or end up using you for paying gigs when they do finally get some marketing dollars.



Chris Blair
Magnetic Image, Inc.
Evansville, IN
http://www.videomi.com


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Ryan Cathey
Re: Loan or not to Loan?
on Feb 13, 2009 at 5:47:00 pm

Thanks!

Business has slowed almost to a halt, so I guess it's time to get out the old Chamber of Commerce schedule of events...



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Nick Griffin
Re: Loan or not to Loan?
on Feb 14, 2009 at 1:59:25 pm

Ryan-

I've re-started this thread above so it doesn't get lost this far down. Please see "Advertising for new business," posted 2/14/09.


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Ron Lindeboom
Re: Loan or not to Loan?
on Jan 25, 2009 at 4:30:45 pm

[Todd Terry] "It was with the bank we have been dealing with for years, have banked with them forever, maintain a pretty healthy balance with them, had a previous loan repaid to them (early), have an excellent credit rating, and had really high accounts receivables on the books from reliable and well-paying clients... yet the bank was absolutely less than interested in even discussing a line of credit with us."

It's time to let your bank know that you are going to go "banker shopping."

Seriously.

I used to teach small business classes for two banks in Central California and one of the things we discussed in one of the class sessions, was "banker shopping." I would always reserve the class for one of the nights when the bankers were not present and then I'd tell the class that "What we are going to discuss tonight is not something that we could have done when Mr. X and Ms Z were here from their respective banks."

In the class, I would discuss strategies for taking your financials, with your receivables, etc., etc., to meet (by pre-arranged appointment only -- never a walk-in) with the bank's business accounts manager.

I would never meet with one of the team, only the manager. It was to discuss the "possibility of bringing our business to your bank and to find out how your bank works with companies of our nature and what your policies and programs are."

By doing this, the bank is automatically in a defensive position and if you play your strategy correctly and do not jump in the minute they offer anything, no matter how good it is, and you always thank them kindly and excuse yourself as you have to present this to the company's decision makers (officers, etc., as appropriate) -- then they never do get off the defensive.

You are not once in the process on the defensive.

Kathlyn and I recently did this after nearly 20 years with the same bank, who -- like your bank, Todd -- would not give us what we wanted. So we looked for a financially sound institution in our area, one with a very high rating and liquidity (so that they have the money to lend) and we made an appointment with the branch manager. He was so excited to discuss things with us that he asked the bank's area VP of Business Services, as well as the Business Services Manager, to join us for a dinner appointment -- their treat.

They took us to the fanciest restaurant in town. They ordered nice wine -- we had to tell them that was quite okay, as I had to stop drinking wine due to doctor's orders as my triglycerides were too high (and I am one of those rare individuals whose reaction to red wine is opposite what most people get -- my blood pressure goes up, not down. Bummer, as I LOVE great wine.

I put them at peace and told them to please get what they wanted. I recommended some of the best wines on the list and explained why some of them were so special -- as I am VERY much into fine wines. They followed my lead and thanked me for the recommendation when they had a chance to taste the wine.

By the time dinner was over, they had sold themselves so hard and justified so many points of their operation that they had to close the deal with us. They had too much invested to just walk away.

So, we got our loan and we moved our business.

Now, whenever we go to the bank, the branch manager personally handles all of our deposits, etc., even if they are not working one of the stations. We have a relationship and we discuss everything from wine, to music, to what is going on in our business and with the bank.

Kathlyn chuckles as she says that never in her life has a banker ever treated her like this. Seriously, we are friends and there is a mutual respect born out of an understanding that we are partnering between us.

You get that by setting the tone of your relationship and it's not automatic, you must both ask for it, expect it and be unwilling to settle for less than it.

It's what I told my classes 25 years ago and the principles still work today.

And remember: the important part is NEVER leave the first meeting(s) with an agreement. Get them invested in the deal. We cut our deal in the restaurant which was our 3rd meeting with the branch manager. If you cut a deal right away, then you miss the point of what this strategy is all about and you will never have a relationship that is one of mutual respect.

Best regards,

Ron Lindeboom


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Chris Blair
Re: Loan or not to Loan?
on Jan 25, 2009 at 8:42:28 pm

I'll add to Ron's advice that if you bank with one of the bigger banks in your city/region, seek out the smaller banks (but do your homework and make sure they're sound financially).

Many smaller institutions are VERY willing to court new business, especially in these times. Many smaller banks avoided getting involved with the sub-prime mess and are in great posiition to loan money. NPR actually did a story on this very phenomenon a couple months back and profiled a couple of regional banks that had zero sub-prime loans and didn't get into any of that confusing deriviatives stuff that all the big banks did.

We've actually been approached by a couple of small banks in our area about taking out loans (by small, I mean they have half a dozen branches in our city, with a few more in outer lying regions), and we've even gotten some work from one after they approached us about moving our accounts.



Chris Blair
Magnetic Image, Inc.
Evansville, IN
http://www.videomi.com


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Ron Lindeboom
Re: Loan or not to Loan?
on Jan 26, 2009 at 2:13:35 am

Yes, as Chris points out, we too found a very highly-rated local institution that has only 16 branches but was quite willing to loan money as they had ZERO sub-prime and other funny-paper loan business on their books. They were quite solid and willing to do business.

Ron Lindeboom


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Tim Tschudin
Re: Loan or not to Loan?
on Jan 25, 2009 at 9:48:22 pm

Thank you all for the good advice...and may the video gods be with you:)



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Terence Curren
Re: Loan or not to Loan?
on Jan 26, 2009 at 2:33:05 am

Lots of great advice so far. Let me add, if you can avoid it, NEVER lease. That is an area that is rife with unethical companies. The credit line is a much better idea. And get the max sized credit line you can. You don't have to use it, but there may times when it will save your bacon.

Also, there are rent vs. buy calculators out there that can help you decide when it is time to buy.

Frank Capria made one years ago that I believe is on his blog. http://www.capria.tv/?cat=5&paged=10

Terence Curren
http://www.alphadogs.tv
http://www.digitalservicestation.com
Burbank,Ca


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