[Noisebridge-discuss] Financing

[Christie Dudley]

Wow, this is fantastic information.  I'm willing to bet this is
something Mitch has some experience with once he gets back in town.
I'd love to see his take on this.

It's certainly a good idea to seriously consider how much improvements
will cost when we move in.  How would we assess the size of the loan
we might need in advance, though?  Obviously none of us are
contractors who can just walk through a place and know what it'll
cost.  Even figuring out how we'd want to build the place is still up
in the air.  From the sound of things, the landlord doesn't really
even know.

The alternative of building as the money is there is silly.  I think
we all know better than to wait on building the place for months or
years.  I think mostly people are willing to live with the actual
construction, not the money to make the construction happen, although
I suspect most folks are figuring on building it out ourselves for
cost and "working around us" reasons.

The need to pipeline any loan we might need makes sense, it's just how
would we grapple with how to accomplish that in any useful manner.

Christie

---
 Disrupting paradigms since 1967



On Fri, Jul 17, 2009 at 1:40 PM, Geoff Schmidt<geoff at geoffschmidt.com> wrote:
> 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
>
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