[Noisebridge-discuss] Financing

[Geoff Schmidt]

To get people thinking about this, if they're not (if I've missed  
prior conversation, I apologize and defer:)

Buildout is going to a significant expense, equal to many months of  
rent. That's not necessary wrong, because it's a space that  
Noisebridge will enjoy for several years, and it makes sense that  
Noisebridge's biggest investment would be in its space. But it creates  
cash flow issues, because Noisebridge has to pay all the money  
upfront, but receives it back in membership fees over the next few  
years.

Small organizations like Noisebridge are in this position all the  
time. The usual way to solve the problem is with a bank loan or line  
of credit. So Noisebridge could spend $25k on buildout now, and pay  
for it as $780 a month over the three year term of the lease (assuming  
8% interest for the sake of argument, for a total payment of $28k.)

Loans for tenant improvements are routine, and Noisebridge has a  
simple, predictable financial model, and a little operational history  
to back it up. So this would not normally be a difficult loan to get.  
However, because Noisebridge has existed for less than two years, it's  
likely that one or more people would have to personally guarantee the  
loan. Also as a non-profit, Noisebridge is not eligible for the usual  
7(a) SBA-guaranteed loan product that most banks offer, so it might  
take more shopping than usual.

Why get a loan, rather than doing the buildout over a few years as  
funds are available? If the choice is between those options, then  
Noisebridge should get a loan if it can. You get a lot more for your  
money that way, because you can enjoy the improvements for the full  
lease term.

--

Things to consider in the short term:

* If Noisebridge wants to keep the option of a bank loan open, the  
time to begin talking to bankers is now. Because of the economy, some  
banks are taking much longer to make lending decisions than they  
normally would (based on conversations I've had with bankers.) Also,  
because Noisebridge isn't eligible for the usual SBA loan, it might be  
necessary to talk to many banks.

* It may be necessary to get a lease term longer than 3 years in order  
to afford the buildout you want. Reasoning: $25k would be a really low  
amount to build out 5600ft2 of office space. It can easily cost $100k+  
(based on conversations I've had with people who have worked on such  
buildouts.) The loan shouldn't have a longer term than the lease, for  
obvious reasons. If Noisebridge can only afford, say, $1000 of  
buildout payment a month, but wants to spend $50k on buildout, the   
lease would need to be for 5 years (assuming 8% interest.)

geoff