After 38 years in business, I totally agree that the best thing one can do is not have any bankers to deal with. One can always borrow money when one doesn’t need it.
Flyer59, good to read that – I’m a salary slave myself so no actual experience running a real company, but I always thought it ought to work like you say, for most cases. The ‘conventional wisdom’ that a company needs to borrow money for its everyday operations – and become dependent on banks, or (probably worse) stock markets and analysts – feels wrong, to be avoided definitely :)
We have a cabaret/actor over here who said something like “What is a bank hold-up, compared to the founding of a bank?”
Anyways back to topic, how about that Aerostar? ;)
I’m quite happy to have made money renting other people’s money. Of course, everybody would love to avoid dealing with bankers but not everybody is handed a large sum of money with which to run their business. Building wealth without borrowing money takes either a very good and original idea plus luck, or a generation running the business before you arrive.
Dooga, as countless corporate employed engineers have found, 
its quite possible to use the cash flow from a career accessible at age 22 (and broke) to do private business over the years, and thereby save a lot more money than the job itself can provide 
Then with the stack of money collected, you can sponsor the next generation in their quest to make money without bankers. You can also buy some airplanes, the two are not incompatible in my experience, as long as you don’t buy inordinately expensive aircraft. My first boss, a good company employed engineer and very practical real estate investor, bought a then 25-year old Cessna 320 that way, his aircraft choice (on topic) simply because his wife refused to fly in a single! It was a great plane.
Our company started with $ 20.000 in 1989, and it was a combination of “at the right place (Czech Republic when the curtain fell) at the right time” …and a solid product with little competition (Mercedes Unimog utility truck). And some luck, i guess …
What the banks look at is security. That could be steady and high(ish) income, investments (house, property, industry etc) and your ability to handle your expenses. It’s very naive to think that banks will help you because they feel bad for your losses or something. They will help you only if you can show them some real value or a juicy carrot. Besides, if you are in a low capital business where there is no requirements for bank guaranties from the customers, then why should you bother with banks more than absolutely necessary? The only reason would be you are in a start-up phase or are in trouble.
For a normal person, the only thing that counts is security. If you can show that, it doesn’t matter if you pay cash or take up a loan. Most people both save money and loan money at the same time, and the bank is simply a buffer making life easier.
Dooga wrote:
We have a cabaret/actor over here who said something like “What is a bank hold-up, compared to the founding of a bank?”
That’s a quote from the Beggar’s Opera in the adaption of Bertolt Brecht/Kurt Weill, written in 1928.
That “I don’t need banks” is a bit naive. Some businesses can be run just cash-flow financed but most can’t and it wouldn’t make sense either. Banks play an important role in our economy and apart from all the scandals and wrong developments in the last decade, they do their job generally well. I live in an area that is dominated by small and medium manufacturing businesses and they thrive because they can rely on supportive banks.
Nobody would deny banks and lenders have their uses but the point myself and others made is that you have a lot lower stress level in your business if you fund it yourself i.e. from cashflow.
Obviously a lot of this comes down to attitude. I have met countless people who are quite happy to borrow loads of money, take huge risks, and the business usually crashes a year or two later (most startups fail within a year or two) with the loss of loads of peoples’ livelihoods, not just in the company but among their suppliers who got bent over the barrel and shafted.
In most cases, if you can set up a business which runs great from Day 1 and can be started easily on borrowed money, everybody will already be doing it.
I think borrowing money for a private aircraft is the height of folly – unless you are borrowing the money just “because you can”, at a very low interest rate, and you could pay it off anytime. Buy to let mortgages are one example in the UK but there aren’t many others. Loans to companies are normally at a substantial increment over base plus they want security.
I understand what Achim is saying, and it’s probably true in many cases.
But it’s not the way i want to live, and the terrible experiences i had with banks support my decision to not finance the growth of our company with loans.
I really do not see where banks do such a great job, especially in the private banking business they do a terrible job and their morals and work ethics have little to do with their advertising billboards.
One example (of many) from this year: I have one account in the Czech Republic, at a German bank, actually. It’s the same bank where we have our company accounts. I discovered that the bank charged me 500 czech crowns (18,50 Euros) for every small foreign transaction. I complained and the answer was: “Oh, no problem, if you want we can change that to 50 crowns”. (€ 1,85)
And that’s a very typical behaviour. They do it as long as they csn get away with it.
You make it sound as if there is a choice whether to operate on borrowed money or not. Only very small or very old businesses typically have that choice and even then typically only when they don’t have substantial growth.
Personal aircraft I agree. Taking a loan to buy a Cirrus is not smart. Taking a loan to buy a Citation CJ2+ is a different thing because that is not just a consumer toy but a marketable business tool. Would my company have the need for a jet, I would probably finance it.
This thread should probably be split; there are two very interesting discussions here.
I am convinced that my business would have enjoyed significantly greater growth had the banks not been so obstructive but in the end having a smaller but entirely debt-free business leads to a far more relaxed lifestyle. I think if I had kids that I was trying to build a future for it might be more of a concern.
I have a retired wealthy friend who wanted to take out a buy-to-let mortgage so he could set his daughter up in university digs but, even though he had more than enough money to buy 10 houses, he was refused credit because of his “low income”.
So, given that I enjoy a capped income due to limited capacity for growth due to poor support from banks I would by an LAA aircraft, maybe a Falco……..
