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    10 Replies Latest reply on Dec 29, 2007 5:15 PM by Menoz~

    Got an offer today -

    Menoz~ Newbie
      I had a few guys offer to buy some share of my company if the money was allowed to reamin in an account and only be used for collateral. I didn't see the purpose of it and I haven't asked anyone to buy shares. Okay so whats going on? They said its something they have be doing for a few years now and it's to help new businesses establish credit sooner than it otherwise would. They are wanting to put the money into some interest earning account, some type of government bond, for 10yrs. Their plan is to let me use it as collateral while it earns interest? But heres the catch, they claim that the shares they hold will be worth the amount in the account divided by the number of sahres (dont think thats true - but okay). Over the next ten years they are betting that my shares will be worth more and that I can afford to buy them back at the value they would be on the tenth year minus the money in the account.

      Okay, it's not what I want to do, so I asked the what if questions.
      what if my company fails to increase in value?
      A: after 10yrs the money would be withdrawn and not be eligable as collateral and we walk away.

      what if I have a loan(s) against the collateral and you yank it?
      A: you won't beable to. The bank knows it is only available for 10yrs, they won't lend beyond 7.

      so, if the loans are paid back and the shares are only worth what you paid 10yrs earlier, then what?
      A: we had you back the shares and withdraw the money from the account and walk away.

      Why would you do it, it sounds unreasonably risky for you?
      A: the government bond(s) will have matured by then and you are not going to beable to do worse than $0. So if your business doesn't grow we lose nothing and walk with the face value of the bond.

      But your betting that if I barrow against your money, I will not default on a loan(s) and cause the lender to collect, thats an awful lot of faith for someone you don't know and haven't even ask me about business, Thats the part I find so risky, How can you be certain that I wont default on the loans?
      A: 2 reasons, 1 the money is pledged to 5 other start ups as well we're actually betting 1 of them will out perform any loses. 2 if you default we purchase the debt and work out an installment plan.

       

      Okay, whats wrong with this picture?
      Is what they are doing even legal?
      Is this some method for debt buyers to actually create opportunities for themselves?

      this offer came out of no where and It's nothing I was or will consider.

      Anyone ever heard of this?
      Just had to ask "I already exposed my hesitation to trust in my other posts"
      so just in case I'm letting my suspisions run wild again, does this raise any warning flags with any of you?

      Thank In Advance
      James
        • Re: Got an offer today -
          DomainDiva Ranger
          You need a lawyer....fast.
          1 of 1 people found this helpful
          • Re: Got an offer today -
            LUCKIEST Guide
            As Domain Diva and CC08 said "
            You need a lawyer"
            Everybody in business should have an Accountant, A Lawyer and An Insurance Broker.
            Again, LUCKIEST
            1 of 1 people found this helpful
            • Re: Got an offer today -
              Lighthouse24 Ranger

              I'd proceed with caution for the three reasons you already identified:
              1. They contacted you out of the blue.
              2. You could use the credit you get to create additional credit for someone else (essentially out of thin air).
              3. There are risks to both parties that evidently haven't been discussed or disclosed. As the deal was outlined, it seems that your company could borrow against the T-Note collateral, use the money to buy a bunch of equipment from your long lost cousin in South America (equipment you never receive, of course), which forces your firm into bankruptcy. The bank gets its security from the collateral, so they're happy -- and you and your cousin live like kings. Only these poor guys are left hanging -- and obviously, they're not going to put themselves in that position. So the deal is going to be structured in a way where you're shouldering the bulk of the risk, and it doesn't sound like we know what that risk is yet.

              On the surface this sounds like a normal (and legal) approach to leveraging securities and creating credit (school districts and large equipment buyers like airlines and construction firms do it all the time), but something seems "off" here -- I just don't know enough about any of that to say what it is.

              CorpCons has all the years of banking and investment experience, so perhaps he can shed some more light on how these types of arrangements should work -- and we all can learn something!
                • Re: Got an offer today -
                  LUCKIEST Guide
                  Thanks for clarifying Lighthouse 24Wishing you all a very Happy New Year. Have a blast in 2008.
                  LUCKIEST
                  • Re: Got an offer today -
                    Menoz~ Newbie
                    Thanks again for the great responses,

                    I was and am not interested in what they were offering. Earned credit just seems more rewarding. many successful conjobs seem to employee just enough truth to blur reality. So I was certain that Your experiences and knowledge would help me see difference between an actual legitamte method and the twist they were playing on it. The one thing that tripped my "warning system" was the fact that they didn't feel the slightest bit uncomfortable about approaching me directly without having an attorney do it for them.

                    Thanks again for the responses
                  • Re: Got an offer today -
                    mourak Wayfarer
                    It seems to me ,that you are not really have no clear idea about the offer.
                    So , ill tell you ,first option : forget the deal ,second option is lawyer who has at least 20 years of experience.
                    best luck