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Financing a staffing business
Old 11-29-2007, 07:24 PM   #1
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Financing a staffing business

Hi all - I'm helping a friend with some HR related stuff for her staffing business and when she told me about their investment structure, something didn't make sense to me, so thought you guys might be able to help.

Are business loans similar to home mortgages (as a landlord, it's easier for me to relate to the RE business) where equity in the business (valuation for businesses versus an assessment, of course) could act as the sole collateral? If an LLC declares bankruptcy, would the owners be personally liable for the loan or just the LLC? Any thoughts on how they can limit their liabilities or do a better job financing their business at this stage?


Business has been around 2 years now. It is an LLC, but basically a 'partnership' between two husband/wife teams. My friend and her husband puts up all the money and works part-time for the company supporting the operations. They log an hourly rate for the work they do, but instead of taking out payroll, they get 'equity'. The other guy works full-time for the company and gets a salary. His wife, if she puts in any time, also gets the same hourly rate - paid out through payroll. Seems ok to me so far...

By reinvesting their 'time' into equity, they basically have a positive cash flow. If they include the operational investments that they make (new brochures for their first job fair, etc), then they are in the negative. They have so far invested $150k of their own cash into this business, with approx 50k in AR and approx 25k in technology (printerns, servers, etc)

My friends both work full-time jobs and are expecting their first baby so I'm a bit concerned for them. Maybe I just don't have the stomach for this and this is normal, but you guys have helped us a lot in the past so thought I'd confirm. Thanks!

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Old 11-29-2007, 09:42 PM   #2
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Sorry, but I'm going to ask questions instead of giving answers......

If the two salaried partners walked away from the business tomorrow, what would your friends have from their $150k investment? Just the $50k in AR and the $25k of hardware in the office?

What is the business plan for your friends to start receiving a regular cash flow from the business based on the investments they've made, not on putting in sweat equity?

I don't think I'd lend this operation a nickle unless there was AAA collateral and a high interest rate involved.

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Old 11-30-2007, 02:22 AM   #3
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Some business loans are backed solely by the AR. Others have personal guarantees from the members of the LLC. I would think that most banks these days would require personal guarantees from new companies
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