Beating the System

Leave Him A Loan

The problem: How do you get a hefty bank loan without collateral?

Reality check: "Banks just aren't going to take a risk," contends Sam Rubenstein, an attorney at Bryan Cave, a Washington, DC, law firm."They'll eliminate the risk to the furthest extent possible because that's what their business is, to be risk-adverse."

What our stalwart hero did: Steve Giordano was shot at in the jungles of Vietnam, so we assumed that asking for a hefty bank loan--without collateral--was probably not all that frightening for him. "That would be a true statement," concedes the 50-year-old Giordano, who tries not to sound incredulous when presented with such a question. After his stint as an Army lieutenant colonel, Giordano owned a technology company for many years before starting a new one in 1996: Digital Now in Vienna, Virginia. Digital Now integrates machines that transform everyday photos into digital photos and creates software that allows customers to make photo albums on their computers.

Although big-name clients signed on immediately, big money didn't.Hewlett-Packard was distributing the software product and would eventually send Giordano a cool $390,000. But the check wouldn't be in the mail for another year, and Giordano needed the money now.

He had already taken loans from banks, using the collateral his business had, which wasn't much. "If you put up equipment in a high-tech company, it depreciates so fast that nobody is going to loan you money against it," Giordano says. "And there was the [software] code we were writing, which is sort of intangible."

Giordano's CPA, Larry Brown, found the bank they ultimately pestered and prodded into lending them the $390,000 by networking through a local business group. The bank's policy was to lend 80 percent of a company's accounts receivable. Unfortunately, the Hewlett-Packard money wasn't officially considered that yet. Giordano wasn't a good candidate for a loan.

But he persisted, and after about a dozen phone calls, the bank agreed to lend Digital Now 60 percent of the money the company was expecting from Hewlett-Packard, which translated to $234,000. Once the Hewlett-Packard deal became an accounts receivable, Giordano's loan was upped to the full 80 percent.

"We were mortgaging our future for current needs," Giordano admits. Fortunately, it worked. Digital Now's projected sales for 1999 are expected to hit anywhere from $10 million to $12 million.

For the still-desperate: The SBA (http://www.sba.org) is a good place to look for funds if you're low on collateral. Jeffrey Letwin, an attorney in Pittsburgh who specializes in bank loans, says that if you have a substantial net worth and a long-term relationship with the institution, you may be a candidate for a "character" loan. And there are plenty of commercial finance companies that will loan money for a larger take on the interest.

Bottom-line advice: "Be creative with the contracts you have," says Giordano. "Even if they don't have a good current value, if you sign a lot of long, strategic contracts, banks may loan against that." What if you don't have long-term contracts in the offering? Be nice to the person who has the money. He or she just might bend the rules for you.

Geoff Williams has written for numerous publications, including Entrepreneur, Consumer Reports, LIFE and Entertainment Weekly. He also is the author of Living Well with Bad Credit.

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This article was originally published in the May 1999 print edition of Entrepreneur with the headline: Beating the System.

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