Loans, financing and debt

MechaGodzilla · Post by **MechaGodzilla** » Sun Jun 11, 2006 4:47 pm

Hey all,

So I've been working as an assistant at several studios for about 3 years, and recording on my 001 in the meantime. Business at the existing studios seems to have peaked, and none of my clients can afford the higher rates anyway... So I'm thinking about building out a place.

I'd like to set it up a smallish control room with Pro Tools in some form or another, with an analog console (I already have one in mind), and a live room with one or two isolation spaces. The goal would be to make it a room that rents for $200 / day without an engineer, that would be primarily for my own / business partners' use, but open to any freelancers who would like to book it out.

Anyway, in comes the money. I think I could get it going with $25,000 or so, but I don't know the slightest thing about taking out a business loan (the closest I've ever done is student loans).

So then, how, aside from fantastic good fortune, did everybody finance their respective places? My credit is still pretty excellent, although my income isn't great. I work in music, for crying out loud.

alissa · Post by **alissa** » Sun Jun 11, 2006 5:15 pm

it's weird to me that it seems way easier to get a loan for a car than a business.

kayagum · Post by **kayagum** » Sun Jun 11, 2006 7:30 pm

alissa wrote:it's weird to me that it seems way easier to get a loan for a car than a business.

It's not weird when the bank can repo a car easier than a business. Besides, do you think a bank would know what to do with a mixing board?

Seriously, debt is nothing to sneeze about. The best advice is, if you can help it, don't get into it.

If you don't have a proven track record, or a bulletproof business plan (which is practically impossible in the music business), it's highly doubtful that a bank would give you a business loan. It's not impossible, but highly unlikely.

I would venture to guess that most people on this board did one of the following:

(a) paid as they went as they kept their day jobs or their steady gigs
(b) took out personal loans (credit cards, home equity, etc.)
(c) borrowed/inherited/acquired investors from family or friends
(d) if they were musicians, signed to a label and got a decently sized advance, used some of that money to set up a studio.

If I were you, I would try to get established by saving and financing personally first, then once you get a provable income, then try the business financing route.

PS My day job: I work in the business banking division of a Fortune 100 bank.

circaweb · Post by **circaweb** » Sun Jun 11, 2006 9:47 pm

when i've looked into it, a 2 or 3 year operating history with credible accounting and tax records are required before its even an option.

audiogeek1 · Post by **audiogeek1** » Mon Jun 12, 2006 9:13 am

When I tried the banks turned me down because I did not own a home for collateral. Had I owned a home I could have gotten the loan by regualar means.

Mike

alissa · Post by **alissa** » Mon Jun 12, 2006 10:45 am

kayagum wrote:
alissa wrote:it's weird to me that it seems way easier to get a loan for a car than a business.
It's not weird when the bank can repo a car easier than a business. Besides, do you think a bank would know what to do with a mixing board?

Seriously, debt is nothing to sneeze about. The best advice is, if you can help it, don't get into it.

If you don't have a proven track record, or a bulletproof business plan (which is practically impossible in the music business), it's highly doubtful that a bank would give you a business loan. It's not impossible, but highly unlikely.

I would venture to guess that most people on this board did one of the following:

(a) paid as they went as they kept their day jobs or their steady gigs
(b) took out personal loans (credit cards, home equity, etc.)
(c) borrowed/inherited/acquired investors from family or friends
(d) if they were musicians, signed to a label and got a decently sized advance, used some of that money to set up a studio.

If I were you, I would try to get established by saving and financing personally first, then once you get a provable income, then try the business financing route.

PS My day job: I work in the business banking division of a Fortune 100 bank.

saint paul huh? do i know you?

if you're bored tonight, i'm playing at the acadia

Fieryjack · Post by **Fieryjack** » Mon Jun 12, 2006 4:09 pm

I think it must be pretty tricky to get a loan for a studio these days.....take the following scenario, for example.

Client A is applying for a loan for a recording studio. Anticipated revenue is $500 per day, investment requirement is at least $50,000. The only way to increase this (if the model is based on rental) is by adding another room, an add'l $25,000 at least.

Client B is applying for a loan for a barbershop....anticipated revenue is $100 per hour ($1,000 per day). Investment is the cost of a small shop, a chair and a pair of scissors. To increase revenue, he needs to add a few chairs and a couple other barbers.

Which is the riskier investment, and which has the most predictable return and the easiest means to scale up to demand? Its no surprise why banks aren;t giving out loans for studios, fair or not....

;ivlunsdystf · Post by **;ivlunsdystf** » Mon Jun 12, 2006 6:34 pm

Don't use a credit card or other usurious means to finance any business. It happens all the time. I can name three or four personal acquaintances who did this, and spent literally the next 3 to 5 years paying dearly for it (and that was after the businesses had folded due to lack of cash flow)

A home equity loan would be a much better way, if you own a home and have equity in said home.

Randy · Post by **Randy** » Mon Jun 12, 2006 6:51 pm

It's funny FieryJack would mention the barbershop thing. My mother had a beauty shop for 15 years and although it didn't make her rich, it kept us in food and resale clothes. She quit for a couple of years to get some foot surgery, and when she wanted to start up again, even though she had a reasonably successful business history, they wouldn't fund her. She turned to her credit card to start things up and that drove her to bankruptcy. Once you get into credit card debt there is virtually no way out, short of inheritance or lottery winnings.

Another thing, if you fund with credit cards, it is your own personal debt. If you are able to get a studio going and eventually have a line of credit, your business is responsible for the debt. There is a big difference between your business going bankrupt and you going bankrupt.

Ease your way into the business. Don't take out a big loan and hope that you can pay it off.

my $.02

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Loans, financing and debt

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