Bravo, Gen.

I'm walking a mile in those same shoes - subchapter S corporation, wishing it was a C, so we can retain earnings; partner with a big note and a second on 'his' home, which is being foreclosed on, who wants to do some mumbo jumbo so he can buy a bigger place.

Only difference is, I am hoarding cash in laddered CDs at several banks within walking distance from my rented apartment.

Always willing to be a wire-pulling monkey, if the situation requires it. Bet you have the Category 5e wiring schema committed to memory.

Right on Karl! Great ticker-

Great Ticker Gen. I worked on my own small business plan in the 2002 recession (after being laid off from a $90K job), and was pursuing the same methodology - bootstrap growth. I had to keep looking for a job though, I had a daughter to support, which probably diluted my efforts. The good news is that I found a job in my field six miles away in late 2003 for somewhat less money, and my daughter graduated in four years in 2009 with a BS in Molecular and Cellular Biology and now has gainful employment.

I agree with this post 100%.
After I retired more then 20 years ago, I started a number of small businesses and sold them. Never borrowed a dime or took partners.
IMO there are two reasons for small business to borrow, either to finance their personal lifestyle and default, or as a form of leverage to put themselves in a position to compete on price / volume when they can not possibly compete with self supporting established business on capability and/or quality. They don't want to put in the effort to build a business slowly on merit and think OPM is a substitute for it.
All I have to say to them is "go get a job"

Another hypocrite attempt to restart the Ponzi machine.

Most small business relies on the successful service circle jerk, which in turn relies on employment. This is the big hidden statistic. It only shows on tax reciepts.

They need to do a lot more than this to keep most small businesses up and running. Is having more debt to service really an answer?

Notice the first line of the embed says "credit worthy". After that you might as well read blah,blah blah.

Warren Buffett said the exact same thing a few weeks back when asked about Wells Fargo. He basically said that loans ARE available for credit worthy borrowers now, and the small business owners who need the loans the most are poor credit risks and should not be loaned anything.

I have an S-corp that is about 8 years old now. I have very little debt but business is down about 20%. If I had bigger loan payments I'd be BK. It's insane that idiot politicians who have never run a business are trying to influence how we run ours.

The only thing that would make me hire more staff is if my gross revenues increase beyond the capacity I currently have....and that increase is sustainable. Hiring staff for some stupid tax break? You gotta be joking.

I and my family are small business owners - one who bought an existing concern in late 2003 through financing guaranteed by personal assets.

Through what I'd like to think as good business practices we doubled the company revenues by 2006 and well into 2007 and by doing what Gen mentioned were able to pay off the initial business purchase loan and service the capital equipment leases.

Since late 2007 - significant day eh - the business has shrunk back to, I'd say, 2005 levels and we have been abel to scsal back our capacity with minimal capital losses.

The point for me is that even if I were inclined to expand using small business loans or additional equipment leases I would not - will not - because I do not see the demand.

It's a bit of the chicken-and-egg thing I guess, but I am not going to go first and add capacity given what I see and given the crooks still running things.

Pete

Right on, Gen! I began a small business over 25 years ago. I was lucky, and made it on the first try. After all these years we are still small family owned business, debt free, and have no use to take on any debt. If the government wanted to help us out they could start by reducing payroll taxes, state unemployment tax and and other disincentives to hiring and training new people. I will NEVER hire anyone under the current conditions of government taxation and regulation.

Organic growth? What's that?

I am sickened every day by attempts to get the Ponzi scheme running again. I keep seeing the final scene of "V for Vendetta" running through my head...

Seven8n2 - yep Payroll Taxes into a social security system that probably won't pay the employees any way.

but, but, but…. without that transfer of wealth and capital how can we grow the Defense budget at 10% a yr.

We are still one year away from canceling all entitlements and turning the budget entirely to defense and interest, sending out the trucks to round up 50 million 18 to 45 yr. olds, sending them out with the guy in assless chaps with a megaphone to secure the Worlds natural resources for the EMPIRE. Really who is going to nuke us when we are already suffering from the missing Nuke.

Right on!

I agree 100%.

I agree, but my understanding of standard business school dogma (no, I don't have an MBA) is that this completely contrary to the "accepted" way of doing business.

My understanding (and I could be wrong) is that given an idea that you can demonstrate with a business plan should be profitable, you WILL get capital. This is just a basic assumption of business. Even if you need $50 billion dollars to make an idea work, if you can show that you'll likely make $100 billion dollars in a reasonably short amount of time, the money will come from somewhere because that's just how the free market works.

Funny how business theory can be so out of touch with business reality.

Musashi wrote..

IMO there are two reasons for small business to borrow, either to finance their personal lifestyle and default, or as a form of leverage to put themselves in a position to compete on price / volume when they can not possibly compete with self supporting established business on capability and/or quality.

That is very simplistic to say. Loans help you to depend less on others. Certainly, if I could have gotten some sizable loans, I would have avoided some of the situations that I am now dealing with. It really isn't that simple.


Bootstrapping is not for everyone and can add layers of complication to your business initially. You are heavily dependent on suppliers and when suppliers screw you or screw up, you may end up screwing someone (or numerous someones) down the line. The whole point of external financing is to optimize your operations and the reason that the banks are in trouble is because a credit score is not a sign of capability and they lost tons of money giving money to people with good credit scores who drain their LLCs to keep it that way. Many of the people who stuck it out are the ones with bad credit.

Do you think the AIG upper management will take a hit on their credit report or their pockets for AIG's problems? GM? Ford? CIT? A "zombie" bank? All of those guys can get loans tomorrow...and are. Why aren't they learning their lesson? Many of them are not personally affected by the lesson. In other words, the lending standards aren't really the same.

The administration is jawboning as usual. The SBA can simply say that if we have a tax return on file as of 1/1/2010 from 2008, we will run a microloan program that you can make use of. It just won't happen because it is strictly propaganda.

Quote:

The whole point of external financing is to optimize your operations

Sorry, no.

This is simply wrong and it is trivially mathematically demonstrated.

Gen, do you have a link for that?
Peter Drucker said that he saved more business that he could remember just by telling them to secure credit when they DON'T needed it. That is when the banks will lend. When you need it they will not. LOL, Kiyosaki says the same. Any how, in my experience that is true.
Also: credit is not bad if you can use with responsability. But that we all know is ver difficult.

Quote:

Loans help you to depend less on others

Wrong. Debt makes you more dependent.

Karl said,

"I learned an important lesson from all this in the late 1980s and 1990s - you don't really need loans to set up and operate a small business. You need guts and the willingness to work long hours and take risk. Personally. Yes, you'll grow slower. So? You'll own what you earn - it will be yours, not the bank's. You'll keep your opportunities to yourself, instead of always looking over your shoulder. And when the time comes to expand, whether it be by buying more stuff, adding employees or moving to a new, larger location you'll do it based on cash flow, not on whether you can make the minimum payment on some note and pray that you'll be able to roll it over at reasonable interest rates in a year or two."



EGGZACTLY!

ETA [It worked the same way for me too]

Wow I love to hear confirmation of this point by others. Rare to hear it tho...

I developed 2 sayings during the 80's:

"Be your own bank"

and

"Never let a banker get you over a barrel"

Bankers never liked to hear those, as I was outspoken. Once, in a meeting, they told me I had a reputation for being "difficult". I told them I took that as a compliment.

In that meeting I concluded a deal [personally guaranteed, different company name] that was the only time I borrowed for business to build our R&D type building, 8 bays with potential for 12 tenants in bad economic times, [almost 40k feet] owner and tenant use, had AAA tenant lined up with rent guarantee for 3/8 footage before bldg was even finished], for almost 1.5 mil as an industrial revenue bond, in '83-4, I already owned the 2 1/2 acres in a nice indust park. Beautiful versatile bldg, brick and block, sold in 2004 because I was tired managing it, expected economic collapse, and wanted freedom after selling the biz a couple yrs earlier, and the building is still fully occupied today.

If you start a biz, human nature causes you to want to 'share the pain' with others and take them on board as principals to give you a more secure 'feeling'.

Don't do it.

Tough it out and like I demonstrated on the conference table to the buyers of my biz [Hi-IQer's with all the right business credentials, investment bankers, etc, but complete business idiots, that's another story], I circled both arms outstreched on the table and simulated raking all the $$$$ into my lap. This was to help them understand to keep the company vertically integrated. [And psych-ops to capitalize on their greed]

But they didn't... My Baby, what have they done to you???

[Hahaha, and what did I do to them??? ]

Great Ticker, Karl. The Princes of Moral Hazard have now introduced ANOTHER minefield to harry the busy & overworked small business person:

KD wrote: "We paid people out of our business checking account..."

You have to be looking over your shoulder on FDIC Friday these days - through NO fault of your own. As you have pointed out in the past, if they swoop in and freeze your payroll, you can be thoroughly screwed.

Bastards.

Quote:

Peter Drucker said that he saved more business that he could remember just by telling them to secure credit when they DON'T needed it. That is when the banks will lend. When you need it they will not. LOL, Kiyosaki says the same. Any how, in my experience that is true.

Bull****.

Drucker and Kiyosaki are both arguing for the "I'll blow us BOTH to hell!" perspective - that is, economic terrorism.

Only the idiots that can't manage and run a business need that.

The problem with that strategy is that one of these times you'll threaten that and the other guy will say "ok!"

Genesis wrote..

This is simply wrong and it is trivially mathematically demonstrated.

No, it's not unless you are using it for the wrong things.

I'll take Allegiant Airlines, the most profitable airline in the USA today. They almost went bankrupt initially because they were hiring planes to fly and their markets couldn't support that. They got a loan to restructure the business and get their own flying certificate. This dropped their unit costs by at least 30%. This allowed them to go from being at the verge of bankruptcy in 2002 to achieving a 31% operating margin in one quarter...in the airline industry. Q4 2009 marked 28 straight quarters of profitability. If I remember seeing right, they now have more cash than debt!

Clearly, their success shows that when debt is used to fund the foundation (not operation) of a successful business model, it works.

Musashi wrote..

Wrong. Debt makes you more dependent.

It can, but not always so. It depends on the type and structure of the debt. As Karl acknowledged, his lack of debt forced him to pass up certain opportunities. Other companies used debt to pick up certain opportunities and not all of them failed. Otherwise, no one would be offering to lend money. Debt is as broad as securitization. You cannot just say all of it is bad without qualifying your statement.

Expy wrote..

In that meeting I concluded a deal [personally guaranteed, different company name] that was the only time I borrowed for business to build our R&D type building, 8 bays with potential for 12 tenants in bad economic times, [almost 40k feet] owner and tenant use, had AAA tenant lined up with rent guarantee for 3/8 footage before bldg was even finished], for almost 1.5 mil as an industrial revenue bond, in '83-4, I already owned the 2 1/2 acres in a nice indust park. Beautiful versatile bldg, brick and block, sold in 2004 because I was tired managing it, expected economic collapse, and wanted freedom after selling the biz a couple yrs earlier, and the building is still fully occupied today.

THAT is the point of borrowing. Everyone has their ideas about bankers, but you made them work for you. You already had a plan to make the money work and you just needed the money. This isn't debt slavery. Not everyone that has debt is a slave to it.