IBR for Solos? Forum

[A'nold]

A sole proprietorship nowadays is pretty retarded. There's really no good reason anyone would ever have one, except that they just don't know better. E.g. your secretary is out at lunch, and crashes her car into pedestrian; pedestrian is a quadriplegic; you get sued; pedestrian can take everything you have instead of just what your business is worth (e.g. pedestrian could even dip into your trust fund that you acquired before you started the business, etc.). Not really the best of examples, but if you're creative you can think of a billion other ways you can get screwed as a result of having a sole proprietorship.

That sounds about right.

I wonder if that is true about not getting business loans if you do something other than a sole proprietorship. I've never heard anything like that before.......

Also, does anyone know about how IBR would work with this?

Because it's not true. However, you need collateral to get loans. You won't get unsecured loans on the corporation when you just start out... basically you'll need to put up your house and other assets to get a loan.

So.....what if you wanted to take out like a 200k business loan and had 50k to put in?

[XxSpyKEx]

A sole proprietorship nowadays is pretty retarded. There's really no good reason anyone would ever have one, except that they just don't know better. E.g. your secretary is out at lunch, and crashes her car into pedestrian; pedestrian is a quadriplegic; you get sued; pedestrian can take everything you have instead of just what your business is worth (e.g. pedestrian could even dip into your trust fund that you acquired before you started the business, etc.). Not really the best of examples, but if you're creative you can think of a billion other ways you can get screwed as a result of having a sole proprietorship.

That sounds about right.

I wonder if that is true about not getting business loans if you do something other than a sole proprietorship. I've never heard anything like that before.......

Also, does anyone know about how IBR would work with this?

Because it's not true. However, you need collateral to get loans. You won't get unsecured loans on the corporation when you just start out... basically you'll need to put up your house and other assets to get a loan.

So.....what if you wanted to take out like a 200k business loan and had 50k to put in?

What? Why would anyone borrow you $200k? ... If you have assets that are worth $200k to put up as collateral, why wouldn't you just repay your student loans? I don't get it.

[A'nold]

That sounds about right.

I wonder if that is true about not getting business loans if you do something other than a sole proprietorship. I've never heard anything like that before.......

Also, does anyone know about how IBR would work with this?

Because it's not true. However, you need collateral to get loans. You won't get unsecured loans on the corporation when you just start out... basically you'll need to put up your house and other assets to get a loan.

So.....what if you wanted to take out like a 200k business loan and had 50k to put in?

What? Why would anyone borrow you $200k? ... If you have assets that are worth $200k to put up as collateral, why wouldn't you just repay your student loans? I don't get it.

Wait, now I'm confused. With small business loans, don't you come in with a certain amount of $ and get more $ from the bank? Kind of mortgage-esque? No?

[ScaredWorkedBored]

Oh you can get a loan to your business. But the bank is going to secure it to your personal assets to the extent the business assets are inadequate (any new business), demand a personal guarantee, or often both. Banks have lawyers too and they know that if they're only going to be paid by a disposable separate legal entity that is not worth foreclosing on, they might have real big problems.

The ONLY thing a bank cares about is "If this loan defaults, is there something that I can seize so that I can get all my money back?"

You might have possibly gotten away with a non recourse business loan for a new business in 2005. Absolutely no chance of that happening now. Banks just will not lend against a shell. Doesn't mean you shouldn't have a separate legal entity (you absolutely should for reasons that become very clear when you take BizOrgs/Corporations/whatever it's called at your school), it just means that the lending is not going to be structured so you have no skin in the game.

EDIT for E&E: One way to understand it is look at commercial real estate. Traditionally, these loans were done 95%+ loan-to-value, non-recourse. That was because if the borrower defaulted, the bank was perfectly happy to take the office tower. Hell, the collateral had probably appreciated (so the borrower''s lack of equity didn't matter), it had more than enough cash flow to sustain owning it (tenants), and you'd get a new buyer in a hurry anyway. If someone didn't work with the bank to take out the distressed borrower BEFORE actual default, which they often did.

Nowadays....yeah.

[A'nold]

So are you guys saying that you couldn't go into a bank with a JD, experience, business plan, 50k, and come out with a 200k loan to start a law firm?

[ggocat]

So are you guys saying that you couldn't go into a bank with a JD, experience, business plan, 50k, and come out with a 200k loan to start a law firm?

I don't think so, but you gotta talk to a banker.

Nonetheless, you don't need a bunch of money to start a firm. The people who need money like that are experienced attorneys handing high-dollar personal injury cases.

EDIT: And I was talking about unsecured credit before. Of course you can operate with limited liability and still get credit with collateral.

[A'nold]

So are you guys saying that you couldn't go into a bank with a JD, experience, business plan, 50k, and come out with a 200k loan to start a law firm?

I don't think so, but you gotta talk to a banker.

Nonetheless, you don't need a bunch of money to start a firm. The people who need money like that are experienced attorneys handing high-dollar personal injury cases.

EDIT: And I was talking about unsecured credit before. Of course you can operate with limited liability and still get credit with collateral.

How much do you think it would cost to open up a PI firm (secondary or lower market)? Would you just refer bigger cases and get a % from the big guys that take the case through discovery and maybe to trial? I believe my "big guy" firm paid a smaller firm a percentage for a referral in one situation, but I don't know the details.

[XxSpyKEx]

So are you guys saying that you couldn't go into a bank with a JD, experience, business plan, 50k, and come out with a 200k loan to start a law firm?

Yes... Banks aren't in the business of taking "investment" type risks. The only thing that they care about is that they are going to get paid. Think about it this way, everyone's got a great start up business idea, but no one wants to risk their own money. The bank sure as hell isn't going to risk their money on your start up business. It's just not what they do. They aren't investors. Basically, if you aren't worth $200k, or if you are worth $200k but aren't willing to put up everything for your business, then you aren't getting loan for $200k.

[A'nold]

So are you guys saying that you couldn't go into a bank with a JD, experience, business plan, 50k, and come out with a 200k loan to start a law firm?

Yes... Banks aren't in the business of taking "investment" type risks. The only thing that they care about is that they are going to get paid. Think about it this way, everyone's got a great start up business idea, but no one wants to risk their own money. The bank sure as hell isn't going to risk their money on your start up business. It's just not what they do. They aren't investors. Basically, if you aren't worth $200k, or if you are worth $200k but aren't willing to put up everything for your business, then you aren't getting loan for $200k.

But I mean, say you want to open a restaurant (the classic example) and you bring in 200k for a 600k loan. This is still a no-go? That's like 33% down on a loan....so basically banks aren't loaning you anything that you couldn't just have by selling something? That seems weird. How many immigrants actually saved up 100k to start that laundry mat?

[ggocat]

How much do you think it would cost to open up a PI firm (secondary or lower market)?

I've been told by some experienced PI guys that a new solo would need $200K-$300K in a secondary/local market. But these guys handle big cases. I have no idea what an estimate would be for someone not handling big cases. But going solo and trying to do exclusively PI would scare the crap outta me. I think you'd probably want to try to have a steady stream of income at first. Even some good PI solos with multi-million dollar verdicts/settlements handle non-PI work to ensure consistent income.

[ggocat]

But I mean, say you want to open a restaurant (the classic example) and you bring in 200k for a 600k loan. This is still a no-go? That's like 33% down on a loan....so basically banks aren't loaning you anything that you couldn't just have by selling something? That seems weird. How many immigrants actually saved up 100k to start that laundry mat?

I am confused by your question. What do you mean "bring in $200k"?

I mean, it's just like buying a house. You don't go to the bank and say, "Hey, I want to buy a house. I have 33% to pay myself, but I'd like a loan for the rest. I have a steady job making $60K/year. So you'll get paid. I can haz loan without mortgage?"

[A'nold]

But I mean, say you want to open a restaurant (the classic example) and you bring in 200k for a 600k loan. This is still a no-go? That's like 33% down on a loan....so basically banks aren't loaning you anything that you couldn't just have by selling something? That seems weird. How many immigrants actually saved up 100k to start that laundry mat?

I am confused by your question. What do you mean "bring in $200k"?

I mean, it's just like buying a house. You don't go to the bank and say, "Hey, I want to buy a house. I have 33% to pay myself, but I'd like a loan for the rest. I have a steady job making $60K/year. So you'll get paid. I can haz loan without mortgage?"

I don't think I'm getting something here. So, you are saying that since the house has an underlying value already that that is the bank's collateral? I can see that I guess, same with cars to a certain extent. But I mean with a business there are some assets at least that the bank can seize.

I guess I am talking about what spyke says, more of an investment into the business. You offer a large down payment, and the bank gets a crap ton of interest through the years. Isn't that how SBA loans work? If every single business loan required 100% collateral, there's no way there would be so many businesses out there.....

[A'nold]

Also, what other kinds of work do PI lawyers do while waiting for bigger cases? I thout fender benders/slip and fall stuff was usually enough?

[ggocat]

I don't think I'm getting something here. So, you are saying that since the house has an underlying value already that that is the bank's collateral? I can see that I guess, same with cars to a certain extent. But I mean with a business there are some assets at least that the bank can seize.

I guess I am talking about what spyke says, more of an investment into the business. You offer a large down payment, and the bank gets a crap ton of interest through the years. Isn't that how SBA loans work? If every single business loan required 100% collateral, there's no way there would be so many businesses out there.....

Yes, the house has underlying value. That's partly why the housing market downfall caused problems for the banks. Bank loans $100K and gets a mortgage on a property worth $100K, then property loses 20% of its value, owner loses job, and owner stops paying bank. You get a home and car loan because the property has value, and the lender can seize and sell.

I won't pretend to know how SBA loans work, but:

Loans are often secured by some or all of the assets of the company. In addition, lenders commonly require the borrower's personal guarantee in case of default. This ensures that the borrower has a sufficient personal interest at stake to give paramount attention to the business.

http://www.sba.gov/smallbusinessplanner ... ASICS.html

[A'nold]

I don't think I'm getting something here. So, you are saying that since the house has an underlying value already that that is the bank's collateral? I can see that I guess, same with cars to a certain extent. But I mean with a business there are some assets at least that the bank can seize.

I guess I am talking about what spyke says, more of an investment into the business. You offer a large down payment, and the bank gets a crap ton of interest through the years. Isn't that how SBA loans work? If every single business loan required 100% collateral, there's no way there would be so many businesses out there.....

Yes, the house has underlying value. That's partly why the housing market downfall caused problems for the banks. Bank loans $100K and gets a mortgage on a property worth $100K, then property loses 20% of its value, owner loses job, and owner stops paying bank. You get a home and car loan because the property has value, and the lender can seize and sell.

I won't pretend to know how SBA loans work, but:

Loans are often secured by some or all of the assets of the company. In addition, lenders commonly require the borrower's personal guarantee in case of default. This ensures that the borrower has a sufficient personal interest at stake to give paramount attention to the business.

http://www.sba.gov/smallbusinessplanner ... ASICS.html

Thanks. You don't think a significant downpayment composing all of your savings counts at all in this blip? I just thought that the reasons people get $$ for startup businesses is that they have a sound business plan and a large amount of $$ to put in. I always assumed that this $$ or underlying net worth was not the total amount. Otherwise, what is the point of a loan? Wouldn't you just take your house's equity or whatever?

[ggocat]

Otherwise, what is the point of a loan? Wouldn't you just take your house's equity or whatever?

The point is so you can still live in your house and operate your business at the same time. If you have $100K of equity in your home, would you rather sell your house, or remain living in your house and get loan?

[A'nold]

Otherwise, what is the point of a loan? Wouldn't you just take your house's equity or whatever?

The point is so you can still live in your house and operate your business at the same time. If you have $100K of equity in your home, would you rather sell your house, or remain living in your house and get loan?

I was referring to a home equity loan, actually. Anyway, this whole thing is weirding me out, haha.