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Old February 28, 2007, 01:16 PM
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Default Loan guarantees or co-signing for cash?

Hi everyone -

Glad to be able to drop back in... I do it far too infrequently because there is so much quality info here everytime I come back I feel I need to catch up on every single post since the last time! (quite a poor reason indeed)

My printer is currently struggling to print off a number of Gordon and James Anthony's posts and I wanted to throw out a quick question while I wait.

Does anyone have any experience or know anything about bringing in partners for loan guarantees or co-signing on substantial portions of institutional interim financing?

I'm working on a ~$11m acquisition right now. Need probably a $2-4m chunk of bank financing (on top of that, I'll be doing some acct receivables financing/equipment financing separately).

All the numbers of course make sense. Cash flow is very healthy. Covenants and ratios all satisfy bankers. Good debt coverage ratio. Current management all staying in place. But I don't have the assets to personally collateralize that small 25-35% chunk for the bank and even with a steady record of growing profits, bankers are well, a lil conservative. I don't want anything to hold this deal up and if that means finding partners just for their loan guarantees and paying them outlandish fees, so be it.

I'm interested in anyone's experience with bringing in partners simply for:

loan guarantees
co-signing for cash as I've termed it (lots of family members do this on small lifestyle type or retail businesses, but I'm talking a little bigger)



P.S. The short of it is in searching through surety and unconventional programs that are out there what I've seen is things like : Investor gets $1m line of credit collateralized against $1m CDs or $2m securities. There are some fees and interest, etc, so the bank loans against this but keeps their interest because they're big risk scaredy cats. So they disburse say $850k to the company with a 12 month maturity. In essence, the investor is rewarded with some portion as a fee for making it happen and perhaps also a small 2-5% equity stake. So after seeing these long drawn out structures, I just keep thinking: if we're willing to pay up to a 15% cash fee for a loan guarantee that makes this happen, couldn't I just find someone more directly who liked the deal and was happy to suddenly have a big check at closing and a little equity in a strong company?

P.P.S. Clearly I think James Anthony's slight alteration of his online forum name is a good one for business confidentiality reasons... my middle name is Nigel so that will work for now
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