A question about a business loan. |
| Posted by: Elizabeth Soroy Jan 8 2004, 10:21 PM |
| Hi, I have just opened a new business imporing Pet Products from Denmark to the US. I have a multi-milliair who are willing to lend me the money in order to do so. He wants a copy of all my papers, including my contracts, contact informations to both the people I am buying products from and to some of my biggest customers. He want me to sign loan documents, but at the same time he want the information from the company in Denmark, so he can send the money directly to them. I feel there is something wrong here..he is NOT an investor, just a lender. Does he have the right to ask for my contracts, contact informations, and also is ist right that he shall bypass me and send the money directly to Denamrk?? I feel that this man tries to take over the business. He is aware of how much money there is in this field, and I have made deals with PetSmart to buy the products… Could you please tell me what you think, and also what is the approriate procedure to borrow money for a business!! He want me to meet him to sign the papers on Saturday, so hopefully I will hear from you befor then! |
| Posted by: loanuniverse Jan 9 2004, 10:14 AM |
| Elizabeth: Well this is a perfect example of the Golden Rule, which basically states: ”He who has the gold, makes the rules!”. By reading all of the requirements that he is asking you to meet, it is clear that he feels that in order to be comfortable with the loan, he needs to do a lot of due diligence and implement some controls “paying the supplier directly”. Maybe this is because your company is new…. Maybe this is the way that he always operates… Take into consideration that this gentleman is a private person not a bank so he pretty much can ask for wathever he wants in the way of documentation and structure. Depending on how much you need the loan and your bargaining power, you could negotiate some of these points. Let me see if I can address your concerns: He wants a copy of all my papers, including my contracts, contact information to both the people I am buying products from and to some of my biggest customers. This is not out of the ordinary. If you are a new company even a established one, a lender would like to see this information. The lender would like to do trade references to find out if your company pays in time and if your business relationships are in good standing. He want me to sign loan documents So would anyone else. he want the information from the company in Denmark, so he can send the money directly to them. This is very unusual, but not completely unheard of. I have been in banking eight years and never had a facility structured like that. Furthermore, I practice in a very Export/Import oriented town so I have seen a lot of importers and exporters loan requests cross my desk so is not like I am inexperienced in the area. Having said that, I talked to a coworker of mine with more than fifteen years in banking and who used to work for a bank that did tons of trade financing. He told me that while rare this would be done essentially for two reasons: reason 1: The one that I already suspected… The lender feels more comfortable paying directly than giving you the money to pay. reason 2: Paying the supplier directly assures the lender that there are no collateral issues if he ever needs to liquidate. That is, the supplier can not claim ownership of the merchandise since they were paid directly. I feel that this man tries to take over the business. He is aware of how much money there is in this field, and I have made deals with PetSmart to buy the products I suggest that you have an attorney review anything that you are asked to sign. I also suggest that you talk to the attorney about what can be done to protect yourself from such a situation. I always say that my advice is worth about the amount of money that you pay for it. You need to make sure that you are protected in this transaction, and the only way to have reasonable assurance is to get professional legal advice. what is the approriate procedure to borrow money for a business!! The only thing that I can say is to shop around and compare. This holds true for your situation as well as anyone else looking for a business loan. Commercial loans can be very different and work best when they are tailored to the specific needs of the borrower. It is a completely different ballgame than your conventional thirty-year mortgage. While in a residential loan you can compare points, rates and service and then pick one, the business loan can be structured in so many ways that they are not easily comparable. Hope this helps. |
