Choosing the Right Loan Shark

Members of the ISP-Investor list discuss the suspect motives of vulture investors and other sources of cash in the current climate.

[December 19, 2001]

On the ISP-Investor list in December, GC asked,

"Does anyone know of a lender that will loan us money against our dialup subs?"

A number of respondents suggested that it might just be a matter of semantics:

[JE noted] "Any bank will let you borrow against financial performance, but I don't know of any that will let you borrow against your customer base."

[JN agreed] "Banks typically will loan against assets and receivables. Customers' payments are receivables. If you have a history and evidence that there will continue to be a stable revenue flow, a bank will consider this equity capitalization or perhaps even a guarantee. I'd call both your accountant and your bank, and talk turkey."

[JT added] "It depends upon your past track record, and how close you've kept your banker informed since you began."

Others observed that a "factoring" loan might be the answer, for better or for worse:

[DI advised] "You may be able to get a loan based on your receivables, if you're signing people up to one-year contracts or otherwise operate on some sort of credit basis. Look for places that will handle 'factoring receivables.' It was originally intended to cut down on the waiting period and uncertainly of getting paid on current invoices, but some places now extend a little past that."

[MM warned] "In my opinion, this is as close to loan sharking as you can get. They'll probably also make you sign a personal guarantee, which I never recommend. If you are this desperate for cash, maybe it's time to call it quits."

—End