Featured Coaching Excerpt - Notes & Transcript, Part 1
Ask Yourself: Have I considered the risk of increased debt and putting up collateral for my business?
Lesson Nugget: The interest rate of these loans are normally double because they are secured (They are a greater risk to the lender).
Definition Magician: Unsecured loans - An unsecured loan can be a fast funding option for a new business or franchise. Because these loans don't require any collateral, they're available to those who great personal credit. - GuidantFinancial.com
Definition Magician: Angel Investor - An individual investor who provides seed money for startups. They are usually found among friends and family.
Lesson Nugget: An unsecured loan acts like a credit card; you have a set amount that you can borrow, pay off, and borrow again.
Lesson Nugget: Most business financing will come through banks and lending institutions, not through angel investments.
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-What is the-- what would you say is the downside to an SBA loan? Like, why would I not want to get an SBA loan, if I'm a small business owner or want to start a business?
-Yeah, I think-- I'm not sure that there is a specific downside to just the SBA, but let's talk about lending in general. I think any time you take on debt, that adds to the expenses that the business has to support every single month. So I think debt service is one of those. The other thing is that the bank is going to take collateral, right? Soif you want to start a businssa and get a loan they're going to require that your home, and other major tangible assets, are potentially secured against that loan itself. So those are some of the risks, but again it's not isolated just to the SBA, it's just if you're going to go out and obtain capital, those are things to consider.
-Which takes us back to my favorite notable quotable that you said. If you want to take the island, you have to burn the boats. I mean, you have to put up some collateral. I mean, if you're going to go for it and try to win, you're going to have to put some kind of collateral.
-Absolutely. Entrepreneurs are definitely taking risks. We talk about lending. One of the things that we love about the rollover for business startup strategy, they're not taking on any debt. This is a pure investment, so there's no debt to service on a monthly basis. So there are benefits, and there are risks to every type of capital source.
-OK, so lending option number four that you all specialize in at Guidant is unsecured loans. On the website it says an unsecured loan can be a fast funding option for a new business or franchise-- fast. Because these loans don't require any collateral, they are available to those with great personal credit.
What is unsecured lending? What is an unsecured loan?
-Yes, so an unsecured loan is a revolving line of credit, so it works much like a credit card. It is a line of credit that says, hey, I can borrow up to x amount, and I can pay it off and reuse it, and pay it off and reuse it, much like you would with a credit card. There are sources out there that will provide up to $150,000 for new entrepreneurs, and do it solely based off of their credit score, and their credit history.
So there's another term that's used synonymously, called signature loans. But ultimately, the bank is going to look at an individual and say, you know what, they've done a great job managing their credit. Their history is clear and strong. And for that, we're going to provide them some benefit.
INTERVIEWER: What's the drawback?
-The drawback is that the rates on these loans-- because they're unsecured, because they're not guaranteed through a program like the SBA-- instead of being in a range of say 6% or 7%, they're typically double that.
-So you're saying because a loan is unsecured, instead of it being 7% it might be double that? You might have a 14% interest rate?
-You could. Now, sometimes they'll give introductory rates to make it more attractive in the short term. But yeah, ultimately they become much more expensive because the bank is taking much greater risk.
-OK, let me ask another question here. Because I know it's not something that Guidant does per se, but it's something that David Nilssen does, angel investor. If somebody was watching this, they're in a dorm room, they are somewhere near the Stanford campus, they've got the next big thing.
-And they're going, I've go the next big thing. What's the way that somebody would try to connect with you, or you might recommend with other an angel investors? I mean, what's the way you get-- what's the formal way, the proper way to get in touch with you?
-So I think the angel investors in general tend to swim in very similar groups, run in similar packs. So I think there are a lot of angel networks all over the country. Those are easy to find. So Angel Network San Francisco, Angel Network Seattle, you'll find a bunch of groups out there. And then again, it's about coffees and cocktails. It's about meeting with people, talking about your idea, asking for feedback, support, what have you, and then ultimately finding the connections that they have that lead you towards individuals that can be helpful to you. I call it following the cookie crumbs.
-Following the cookie crumbs. Let's say that I live in Idaho, and I'm like, I want angel investors. So I Google Seattle Angel Network. Does that person to hop on a plane and come out here and marinate?
-No, typically you can do a lot of this over the phone. Eventually if there's a deal to be done, it's likely that they'll want to meet in person. But the reality is, and I think it's important to note, very few deals are going to get done through angel networks, venture capital, so on and so forth. The majority of the transactions are going to occur inside of the kind of bank financing, rollovers, or business startups, unsecured credit. Those are the places where most businesses are getting financed.
-OK. Final question. I think the thrivers want to know-- and if they don't want to know, I want to know. You heard, back in the '80s we had the guy, Eddie Money. Remember the song, "Take Me Home Tonight?" Do you ever think about going by, on the business card David Money?
-I can honestly say I've never contemplated it.
-OK, well, it's just an idea. And if I catch you using it later, there's no type of claim on that. That's just an idea I give to you.