Home – New Forums Money matters Getting a startup loan…..asking for the moolah

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  • #964625
    Redstars
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    Ok, so have the Business Plan (90% finished), its nice and tight. All research done so it’s crunch time.

    I need 100% of the startup costs ($30k), it’s just the way it is. I’m going into business for myself again because its what suits myself and my family – childcare costs prevents me earning a decent income, and this way I won’t need childcare at all. I need to provide a long term way to provide for my family and this is it.

    Now a bank very kindly (HAHAHA) offered me a credit card – $50k at a rate of 15.76% – no THANKS. I would rather ask a private investor.

    I have 2 people I could approach, Business Plan in hand…I’m just not sure what I am offering in return.

    Person 1 may well be interested in loaning the money to be repaid at a competitive rate of interest, no more.

    Person 2 is quite the business success and the clever person he is may ask for a % share or something. I’m not sure what would be right for me, but attractive enough for him…or even if I want to give a percentage at all.

    Does this make any sense? This is the only thing I don’t have any experience with!

    Thanks in advance…

    Red

    #1006887
    whateverbusinesssolution
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    Hi Red,
    If I understand your post, you are asking whether you should seek an equity investor or pvt debt funding?? Cost of funding in either event will likely be proportionate to the risk associated with the investment … high risk = high cost… security (if any is available) may help to reduce the cost of funds and it is likely that anyone providing debt will seek to secure their investment by way of a fixed and/or floating charge over the assets of the company.

    Evidence of some form of cashflow is relatively important and generally will be required before Banks and private financiers will contemplate an application.

    Hope this helps…

    #1006888
    Redstars
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    Thank you for your reply!

    I am starting to understand it a little better now. I found something (someone!) known as Angel Investors which was very interesting but still the costs can be high.
    I think I am better off looking for private debtor/investors. I do have a list of prospectives, but for now I will work on the actual presentation of the idea because quite frankly I’m going to stretch the term ‘angel’ so it suits me better. I don’t mind asking for better terms and lower interest rates, because I am asking these people for a chance to better my income, not a BIG return on their cash. Since I know these people and they know my track record, I don’t consider this to be right out of the ballpark.

    *puts in rose tinted contact lenses….

    Will let you know how I go!

    Thanks again.

    #1006889
    Wattsup
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    Why would you not take the credit card at 15% p.a?

    If you think Angel investors will require less your mistaken.

    Not only will they ask for a big chunck of your profit they will also take some control over your business….ie become a bord member……however sometimes this can be good as they will also provide you with guidance.

    Personally if you belive in your business model take the 15% cc.

    This works out to $625 month interst only until you get revenue comning in and can knock the card down.

    The other advantage if used wisely is you can reuse the cc over and over again without having to gain approval each time…….can be good for a new bsuiness……but again if used correctly.

    Without any security to offer a lender or private angel I would consider the cc as a good option.

    Good luck.

    #1006891
    KoB
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    Wattsup, post: 7353 wrote:
    Why would you not take the credit card at 15% p.a?

    Personally if you belive in your business model take the 15% cc.

    This works out to $625 month interst only until you get revenue comning in and can knock the card down.

    Wouldn’t the interests be tax deductible? Having said that, 15% interest will eat into the profit/earnings big time. Once the card is paid off, I would get some other form of finance as by then, Redstars, you would’ve proved your business.

    #1006892
    Wattsup
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    Yes the interest would be deductable as a business expense.

    See accountnat for further clarification.

    Although 15% p.a seems quite high….. sometimes you have to back yourself in that you will be able to pay the card off quickly so the rate becomes irrelevant.

    #1006893
    toddo
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    Redstars, I have to agree with Wattsup. I think you will find that over time equity will cost you far more than the initial 15% card. the fact they offered you any type of credit for a startup situation is a surprise given the state of credit markets and the economy.

    Outside of the monetary situation, are you really ready to ask your equity investor for permission every time you need to make a decision that will impact your business? There are plenty of ‘costs’ of equity.

    I would probably ask Person 1 for a loan and then take the credit card as well. believe me, there will be some reason you need extra cash at some point – asking for it then will be a problem – take it now when you dont need it as much according to your plan.
    cheers

    #1006894
    Marcus
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    Hi Redstars,

    You mentioned you need the full $30k, is this unsecured or do you have equity in property that you can use?

    If unsecured that $50k credit card approval is VERY generous and I would jump on it. An unsecured overdraft interest rate would be in the vicinity of 14% and a loan around 12-13%.

    Was the credit card approved by the business or personal lending of your bank? If done by the business centre then talk to them about approving a $30k business loan instead of the $50k credit card – it’s better for them in the long run as it’s a P/I reducing balance compared to the credit card being interest only.

    Send me a PM if you want I do business startups for one of the big four banks – won’t try to sell you anything just here to give advice.

    #1006895
    LukeH
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    As much as I don’t like credit card interest, I think the 15% isn’t unreasonable consider what you have put forward.

    Think about the scenario from the view of an “angel”

    1) I can stick my $30k in the bank and make 6% guaranteed. No risk.

    2) I can give it to you and run the risk of losing it all (I believe you’ll make it successful, but the angel has to think rationally about what they are doing with their money!). What rate of return is that worth? 15% I don’t think so. 25% no way. Maybe 50% if I liked the idea and thought you’d pull it off.

    The risks are so high, that’s why angels are often after 100%, 200% etc. Credit card rate starts to look very attractive if you can back yourself to get your idea working.

    Best of luck!

    #1006896
    Redstars
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    Thank you so much for all your replies, I really appreciate it xoxo

    I am halfway through the NEIS scheme and it turns out that I am therefore eligible for a low interest startup loan (around 5%), should my business plan pass muster!

    I have a much better understanding of the finance angle (what did we do without google?!) now. I have managed to shave alot of $$$ off the startup costs as the plan has formed and reformed again as I continue to learn more.

    It’s very exciting – NEIS has really pushed me to prove my plan to someone other than myself which is hard, but fabulous!

    Geez, I’m tired though…

    Thanks again!

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