Why Not Start Finace Company?

GrasshopperPete

Assume the following:


Times are tough and offering financing can bring in some work.

We have roughly 100,000 members on this forum, many with exp. in subjects other than current occupation e.g:business, finace, etc.

If we came together we could start a member owned finance company or credit union dedicated to financing our projects.

Projects funded on sound lending standards.

If we could count on 5% participation: 5,000 members
Funded with $100 month: $ 500,000 month
For 12 months: $6,000,000 first year


We could a least start with 1-2 year loans, 90 days same as cash, 6 mo int free, etc. Loans that turn around quickly.

Officers, loan officers,among us...with term limits.


We could dig ourselves out of this crisis and possibly turn this into a monster.


Come on, help me kick this around.

Think about what we could create!!!

CScalf

there is only a little over 50k members...

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GrasshopperPete

Ok 50,000 my bad.


Stay focused....what do you think of the idea?

And more importantly would you participate?

S Winklepleck

you're saying invest $100 a month in hopes of getting interest back on that, i'm assuming. The problem is risk. What if no one takes advantage of this because we're all trying to be smart and avoid interest? If no one's paying interest, no one's collecting interest.

You could do like a lot of banks do and consider the $100 a month as money being placed into a savings account, but then you wouldn't be able to count on people KEEPING the money in the account. You could draw off whatever there is within the bank system to loan out money, but then if people want to take their money out and it's not there, you're in big trouble.

Just some kinks to look at. I'm not trying to shoot ya down, I just always look for the downside to things to better know what to avoid.

Also consider the FDIC. We'd have a hard time getting approved for the insurance, and that makes this that much more risky for anyone who did want to participate.

You'll need a bit more detail on how this would work to convince me of anything.

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-Steve

"I need the skilsaw." ... "Why did you bring me the drill box?" "It says S.A.W. on it." "Those are my initials."

DarrenB

Lending real hard money. The default rate would kill you.

The only real reason banks make money is because of our fractional reserve system. In short they get to loan far more than they actually have.

Since you or any of us aren't blessed with the benefits of being able to exploit the fractional reserve system, we have to settle for borrowing cheap and lending over our rate that we could obtain and not having an excessive default rate. Good luck

You could always become a reseller and capture the spreads. Better have a huge volume.

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CScalf

I wouldn't do it...sorry

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GrasshopperPete

Thanks, Steve...yours is the kind of posts I`m looking for to vet this idea.


I`m thinking with our resources and number of members we can start a finance company among ourselves to help finance our projects, short term at least.

Loans will earn interest, plus applicable fees...to be reloaned to other worthy projects. Much like mutual insurance and finace companies of old.

If we did this year after year the company would get larger in assets and itself would increase in value for the shareholders...us... whomever invests.

We prob couldnt finance the larger loans at first, like room additions as the monthly payments may be cost prohibitive...but we could prob do say, $2,000-$10,000 loans and a reasonable rate of 9.9% fully amortizing.

This would help some projects get off the ground and go from there.

ChainsawCharlie

Can we let someone with more than 11 posts hold the money?

GrasshopperPete

9.9 or so could hardly be hard money in todays enviroment. And borrowers would have to have the equity to qualify, liens placed etc.

GrasshopperPete

You can hold the money.

Stay focused, this isnt about me or anyone in particular.


Money would be held in fdic bank.

GrasshopperPete

You`ve never financed any of your jobs...even for a few months?


Thats what we`d be doing...financing ours and each others jobs.

DarrenB

You should do a google search on fractional reserve banking. You cannot lend your money to consumers at 9.9% and make money. Why do you think pawn shops, payday lenders, and title loan lenders have to charge the rates they do?

I have nothing further to say regarding this subject. What you are contemplating is not possible nor practical.

Pioneer thinking though...

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ChainsawCharlie

Anything I'ver had to buy myself at around the the 5k or less mark, i've always taken advantage of any smae as cash / xx months no interest so I could earn a little interest in the meantime.

A lot of folks out there with 10k to throw around would likely do the same. I've offered 90 days same as cash on occasion on small projects, and have never had anyone go past the 90.

GrasshopperPete

I guess the question is could you sell more work or add ons to work if financing were available.

ChainsawCharlie

I am rarely asked if I offer financing. But 90% of my work generally comes in around under 10k. (3k since the election... ) I'm just a little guy.

The "on occasion" when I did offer, they were on the fence about spending money, and that was the deal closer. But in reality, it just got the job done sooner than later, and it was never about going to someone else. Personally, I don't like playing the bank and will only do it for my long term customers. The only other financing I offer is deposit for materials, balance upon completion and net 15 for my monthly maintenance contracts.

GrasshopperPete

This will come as a surprise to all successful credit unions like this one:

http://www.creditunion1.org/ who, like the bumble bee don`t know they`re not supposed to fly but do anyway.

KentWhitten

You're Matt Coops.....aren't you?

It may say 50K Members, but 95& of that are the ones who ask "how much" or are drive by's. 4% of the rest would touch that with a 10' pole. The other 1% are people like Clem.

Good luck.

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GrasshopperPete

I`m not Matt....and who`s Clem.


Its an idea, if it doesnt fly thats allright.

bradgunn

I like original thinking, but...

1. What percent of the 50k (?) would get involved?
2. What's the probable ratio of investors to borrowers?
3. Are there are people willing to take a lower investment yield so I can borrow it at lower than bank rates? (Please call me).
4. Would our mangers lend our money to guys the banks turn down?
5. And, the suits at my bank seem somehow different from CT guys.

.....but keep us posted.

BreyerConstruct

It might be easier & more practical to get a bank/CU to understand our industry, and offer to partner with us- we get some marginally reduced fees, they get a few new members, and we get to offer their financing.

There have been a few institutions to do this before, so it's not a new idea... but it might be the most realistic.
~Matt

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