Comments on: Corporate Borrowing

By: The Evil You Know or the One You Don’t

The Evil You Know or the One You Don’t — Thu, 07 Feb 2008 05:09:26 +0000

[...] Us ← Corporate Borrowing Energy Sales Scams [...]

By: Mike-TWA

Mike-TWA — Wed, 06 Feb 2008 15:15:01 +0000

Nah, we just use candy to secure the loans.

By: Mr. Cheap

Mr. Cheap — Wed, 06 Feb 2008 08:20:15 +0000

abc: Thanks for sharing your experience. Glad to hear I’m not the only one .

Leslie: That does sound like an interesting book, thanks for the recommendation.

TMW: I think you’re right. Good advice for us to cover our asses.

Mike: I thought you Americans handed out credit like candy?

Thanks for all the thoughts guys, I guess my partner was right…

By: Mike-TWA

Mike-TWA — Wed, 06 Feb 2008 04:48:36 +0000

I have friends/colleagues with businesses in the $9-10mil. annual revenues. They are still considered small by lenders and a personal guaranty are still generally required for all loans. Even in cases where the loan is partially government guaranteed, such as SBA loans, the banks still require personal guaranty.

Really, for smaller companies the liability shield that a limited liability entity provides is for tort liability and perhaps trade creditors. The borrowed $ are still carried by the individual owners every time.

By: thickenmywallet

thickenmywallet — Wed, 06 Feb 2008 02:41:52 +0000

If you are a real estate investor and do not have other assets to attach to in case of non-payment, a personal guarantee is conventional. If you use the same bank often and you have a lot of equity in one of your properties, you can negotiate for a 2nd mortgage to be registered rather than a personal guarantee.

Negotiate a limited recourse guarantee which caps your personal exposure to some dollar amount.

Not to be a house-breaker but the bank will ask for the personal guarantees to be on a joint and several basis which means if one of you cannot pay, the other is obligated for the entire obligation (if one of you declares personal bankruptcy, the bank gets nervous and calls in the entire loan). Better make sure both of you have sufficient assets so you don’t leave the other one hanging.

By: Leslie

Leslie — Tue, 05 Feb 2008 18:53:54 +0000

Slightly off topic but having to do with investing in rental properties, several years ago I read an excellent book by Lionel Needleman called Buy Rent Sell–it’s out of print but try the library (Canadian publication). While it was published more than fifteen years ago, the principles are still relevant. A review of it is here: http://rireb.blogspot.com/2005/12/buy-rentsell.html

By: abcstocks

abcstocks — Tue, 05 Feb 2008 17:58:55 +0000

Hi, I have 3 coprporations setup in past and when applying loans to bank, they always wanted information of me nad personal finances. I guess for small businesses it is how it works.

By: Cross the River

Cross the River — Tue, 05 Feb 2008 17:35:23 +0000

Banks have no obligation to loan money to anyone. Sadly, they chose the criterias. So, both of you are right I’d say.

CtR.

By: Mr. Cheap

Mr. Cheap — Tue, 05 Feb 2008 15:28:00 +0000

FB: Yeah, I understand that, sadly I would have hoped they would have taken the attitude that its worth lending to a small corporation to build a relationship for when it becomes a larger corporation. I guess “relationship banking” only goes one way

FS: We certainly can demonstrate repayment capacity (both through income and, in the worst case scenario, equity and the value of the building).

Leslie: That was my one feeling, is that since the corporate was so young that they would be reluctant to lend to us without a longer operational history. Good advice to try other banks (and give our current & future business to the one that’s most reasonable).

By: Leslie

Leslie — Tue, 05 Feb 2008 14:24:09 +0000

It is customary for a bank to request personal guarantees on loans–I went through this at start up for a company. Going back for a line of credit 6 years later I refused to personally guarantee the LOC because the corp had a proven track record (it’s own good credit rating) of repayment. You don’t have a lot of leverage with the bank at this point. Note if you go with a private lender, banks will not recognize the credibility you build up there. A spouse would likely have to get ‘independent legal advice’ to fully understand his/her share in your matrimonial property is fair game if your corp chokes and you’re on the hook.

Shop around banks–some are more open to small corp business. The bank that I went with eventually received all my personal business as well.