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Old 04-03-2010, 04:59 PM   #1
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Default Getting Loans VS Doing it on your own steam

Just curious how many of you at some point during your companies lifespan have looked to getting loans to expand operations.

Thus far I have done this company completely off my own steam and used funds from profits to finance growth.

I could see how taking out loans could be a dangerous proposition if not well managed and well spent, but the thought is tempting to just borrow some money for more advertising and payroll and just hang up the brush and manage jobs and see where that goes.
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Old 04-03-2010, 05:13 PM   #2
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Originally Posted by SterlingPainting View Post
Just curious how many of you at some point during your companies lifespan have looked to getting loans to expand operations.

Thus far I have done this company completely off my own steam and used funds from profits to finance growth.

I could see how taking out loans could be a dangerous proposition if not well managed and well spent, but the thought is tempting to just borrow some money for more advertising and payroll and just hang up the brush and manage jobs and see where that goes.
Most of the larger business owners I know have lines of credit etc. for managing payroll especially while doing commercial work.

Smaller companies it's not a bad idea for the day to day stuff you're covering in your cashflow, but taking a loan to expand can be dangerous and you COULD lose your shirt, then again it COULD be a kickstart. Bigger risk, possibly bigger return.

I don't like loans personally
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Old 04-03-2010, 05:44 PM   #3
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I don't know what you have in Canada, but here we programs like Score and the SBA. They will help small businesses make these types of decisions and help procure loans.
If you had a 5 year business plan for growth and specific needs that a loan would cover, I could see that. But I would not go into debt for normal operating costs.
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Old 04-03-2010, 08:27 PM   #4
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Sterling there are gov't grants available to you. Contact your local MP and they 'should' give you the correct office to enquire. If I wasn't so lazy I'd figure this out for you in the next 10 min, but then I've have to charge you.

Just google something like 'business grants' on the Cdn gov't web site.

My wife is part of the executive council at the Manitoba legislature and you might be surprised what is available that people have no idea about.

......

Saying that doesn't exact address you question though. Getting money is still easy here in Canada....its more about how solid your business plan is and how you are with money. If the bank gives you a 50K line of credit and you go buy a truck with a 'cool' stereo....ummm, maybe expand with your profits instead.

I have a 6 digit line of credit floating at 3%. I live within my means and don't sweat it if a customer pays later, but that definitely doesn't work for everyone.....bottom line is "how are you with money NOW?"

Be honest with yourself and not the 'ideal' answer....go from that.
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Old 04-03-2010, 09:03 PM   #5
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I would advise against it. If you can't afford to expand on your 'own steam' then there is a reason for that. I know how it is to want to get further faster and 'the loan' always looks like a good shortcut. But, what happens when you don't have the skill, ability, or when things just don't go your way? I look at debt as that big rock that hangs around our neck.


Our whole country is finding out that it's not a good idea to live beyond our means. People are not getting foreclosed on because of bad luck or because they were somehow taken advantage of. People made poor choices because they wanted things that they could not afford.



Personally, I would put myself in that category if there was any time that I was planning on financing an depreciating asset... including cars.



This isn't exactly new advice. Good Luck!



Proverbs 22:7 The rich rule over the poor,
and the borrower is servant to the lender.
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Old 04-03-2010, 09:34 PM   #6
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Quote:
Proverbs 22:7 The rich rule over the poor.
and the borrower is servant to the lender.
That is what keeps me from borrowing. I will not have upon myself that another man to have any leverage over me.

I rent homes to live in (I don't live for the American dream).

I pay cash for my vehicles.

Every job pays for what I need. Savings enables me to make bigger purchases in the future.

I would encourage anyone not to get a loan if they didn't need it. But if it is needed, then a solid plan should be made to cover it's return to the lender.

Like yourself SP, my business runs on it's own steam. When it's out of steam, then I would feel compelled to work for someone else until the coal supply shows up. Then this train is back on track.
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Old 04-03-2010, 09:49 PM   #7
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But I would not go into debt for normal operating costs.
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Old 04-03-2010, 11:00 PM   #8
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Looks like I'm a minority here. I fully agree not to use debt for operation expenses, but I use lines of credit and credit cards ALL the time.

I never borrow money to buy something that depreciates. (ie vehicles...worst thing someone should owe money on)

99% of my monthly expenses goes onto a credit card with airmiles. In last ten years I've purchased two digital cameras, my compressor brad nailer, Yamaha surround system, trip for one to Vancouver and next year we are hoping to all go to Mexico on points. I pay it off each month.

I have flipped three homes so far....all on credit pretty much.

I've borrowed as much as 20K to buy RRSP's....and paid it back in months from a return.

My point is it isn't fair to make a blanket statement like, "don't borrow", borrowing money is a tool....you have to know how to use it.



I should mention that 15 years ago (I was 25) I paid a financial advisor a $1000 to teach me how to budget and live within my means. I wrote every....and I mean EVERY thing I bought in a little book that I kept in my pocket at all times. After two months of that, we looked at where the money was going....made some cuts and revisions and for the rest of the year I took my monthly budget to him and I felt like I was 15 years old, but it changed my life.

My greatest lesson from him is he got rid of all the typical engrained North American views and values we typically have about money, and made it just 'a tool', learn how to use it.

I think Wolverine hits it on the head, "it's about living within your means."
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Old 04-03-2010, 11:15 PM   #9
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Quote:
Originally Posted by Paint and Hammer View Post
Looks like I'm a minority here. I fully agree not to use debt for operation expenses, but I use lines of credit and credit cards ALL the time.

I never borrow money to buy something that depreciates. (ie vehicles...worst thing someone should owe money on)

99% of my monthly expenses goes onto a credit card with airmiles. In last ten years I've purchased two digital cameras, my compressor brad nailer, Yamaha surround system, trip for one to Vancouver and next year we are hoping to all go to Mexico on points. I pay it off each month.

I have flipped three homes so far....all on credit pretty much.

I've borrowed as much as 20K to buy RRSP's....and paid it back in months from a return.

My point is it isn't fair to make a blanket statement like, "don't borrow", borrowing money is a tool....you have to know how to use it.



I should mention that 15 years ago (I was 25) I paid a financial advisor a $1000 to teach me how to budget and live within my means. I wrote every....and I mean EVERY thing I bought in a little book that I kept in my pocket at all times. After two months of that, we looked at where the money was going....made some cuts and revisions and for the rest of the year I took my monthly budget to him and I felt like I was 15 years old, but it changed my life.

My greatest lesson from him is he got rid of all the typical engrained North American views and values we typically have about money, and made it just 'a tool', learn how to use it.

I think Wolverine hits it on the head, "it's about living within your means."
Hit the nail on the head with that one
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Old 04-03-2010, 11:16 PM   #10
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I don't think that makes you the minority! Using credit the way you state is smart, that is different than the op getting a loan to cover expansion/operating expense.
Excellent Post!
It is all still living within your means!
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Old 04-04-2010, 11:40 AM   #11
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This is all theoretical, since there isn't a bank in their right mind that would give a small business loan to some small painting company. They tend to like companies with concrete balance sheets.
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Old 04-04-2010, 11:48 AM   #12
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It is true, I asked about getting a business line of credit and the only thing they would give me was an amount that I could match. The end result being not a line of credit I could really use, but a way to increase the credit/credibility of my company for future loans.

In the end, I used both money I had saved for start up business, and my very very amazing father bought me the truck!
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Old 04-05-2010, 06:03 AM   #13
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I do have lines of credit at the different paint mfg stores and pay each off at the end of every billing cycle. It was more a matter of convenience for my employees.

In the 20 years of owning my business I never took out a loan for anything that was business related. Good money management practices was all I ever used.
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Old 04-05-2010, 06:49 AM   #14
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I'm with wolfgang....
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Old 10-20-2010, 02:58 PM   #15
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I wonder do anybody have any info. on this small business bill that just passed in congress.
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Old 10-20-2010, 04:37 PM   #16
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A line of credit for financing inventory or floating payroll has a return. ie You know where the money to repay is coming from. If you are paying an employee its because he worked and earned you money now you are just using the bank to float you money until the account pays on the net. If you need more inventory it means you have the customers to use it, etc etc

Equipment, while a little bigger risk, still leaves you with something tangible and resalable. Advertising has zero promise of return. Want to know how much of a risk it can be? Walk into your bank and tell them you want a loan to advertise. Unless you are Proctor and Gamble, no bank (or grant) is going to fund you.

I am not saying don't do it. With big risk comes big reward. Tighten your belt. Lower your salary. Raise your prices. Up your advertising budget and stick to it. Another creedo I live by is not buying new vehicles. I let someone else pay the depreciation. It also lets me add crews with less outlay.

To Get Yourself Ready For Growth

Systemize. Everything should be a system. When the guys get out of a truck, who does what? What rooms are done first? Write everything down and look at your efficiency.
• Are you overpaying your help? Underpaying?
• What is your sales close ratio? Can it be improved?
• What is your system for referrals and repeat business? Can you squeeze more business out of your existing customer base?

When you have all that laid out, its time to raise your prices. This will be the first real steps towards sustainable growth.

Good Luck!
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Old 10-25-2010, 11:49 AM   #17
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We couldn't operate without a line of credit. Many commercial clients withhold payment up to 90 days. Even 30 days can be too long if you invest a lot of labor and materials into the job. As Pressure Pro said, we are only keeping ourselves afloat on the promise of our Accounts Receivable.
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