five lessons about banks- from mistakes millionaires make
TRANSCRIPT
5 LESSONS
BANKS
about
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Excerpts from Mistakes Millionaires Make, by Harry Clark
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My name is Harry Clark and I thought I had it made.
By 2004, I had:
founded two INC. 500 companies
450 employees
a $100 million net worth
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Although the banker does
his own due diligence,
he will still rely heavily on
YOUR
REPRESENTATIONS
Make sure you are
DON’T
OVERSELL
straightforward with
the bank and
them.
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Be clear that the bank will always side with
its shareholders in a dispute,
deciding what’s best for itself
WITHOUT CONCERN
for the entrepreneur
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Many of us saw
example after
example
of banks making
STUPID
DECISIONS
during the
2008 Recession
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In a severe problem
banks often make
poor decisions that
often leave the
entrepreneur
with
NOTHING
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Banks will always require personal guarantees
in order to have a “secondary source”
of repaying the loan
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They are not required when the company
has other sources of capital, like
private equity or venture capital,
or
when the company has
significant assets on its
balance sheet
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The entrepreneur
usually gets
wiped out
of personal guarantees
ENFORCEMET
because of the
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Therefore, he needs to be
CAUTIOUS and reduce or eliminate
personal guarantees
whenever possible
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For example
If you want a $3 million loan and have
personal assets of $10 million,
the personal guarantees should only contain
$3 million in assets through specific carve outs.
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Credit availability is
CYCLICAL
There are times when it is cheap and abundant,
and times when it appears to evaporate completely.
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When credit is inexpensive,
it is tempting
to take advantage and
through acquisitions or
OVER
LEVERAGE
OVER
EXPANSION
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Several entrepreneurs
stated it as a lesson learned to
NOT DO IT
They ended up loosing their company
as a result of over-leveraging.
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