Loan or not to Loan?

[Ron Lindeboom]

[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)

[Mick Haensler]

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

[Grinner Hester]

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.
😉

[Walter Biscardi]

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!

[Mick Haensler]

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

[Todd Terry]

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

[Mick Haensler]

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

[Todd Terry]

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

[Walter Biscardi]

[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!

[Todd Terry]

[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