Agency Debt Financing VS Venture Capital

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We had a meeting with our fractional CFO and I loved meeting with this guy, go through our numbers with us and tell us about next steps and strategically plan moves, like hiring people, office space, parking costs, leasing, buying cars, all that kind of stuff for the business makes us feel totally, totally under control. And I want to recap some of the stuff we talked about. Okay, where we grow and the more conversations we have with colleagues and other companies, agency owners, there's a consistent theme of either wanting to sell, not wanting to sell. For us, I think at this point we're still deciding what we want to do. Our fractional CFO is basically of the mindset that well, let's just get you in that position because whether you want to sell or not, you still need your books in order so that if you want to have debt or take on a equity partner like venture capital, you're prepared to do that.

So the company's growing really fast and if we want to continue to grow at this exponential rate, we might need more money to do that. So and continue to pay ourselves. Let's say we're all taking 10 grand. If we want to grow more, we might have to take four grand because we need two more employees. Do we want to do that or not? And one way around that we'll continue to pare ourselves consistently and grow is debt financing, which is taking a loan against the company. There's some pros and cons to that as a strategy, and he'd shared all of those with us. I mean one of the real good things about it is that you keep your company, all the equity stays with us, right? If we take on a loan, it's just against the company and that's really good. We maintain control of the company as well.

All the decision making that goes along with it. There's no additional party that's involved in any way, getting rates between five and 6% on money at five years is pretty good too. And if growth is really substantial, we could either pay that off or get a bigger loan or whatever it is to continue to scale and it's just one fixed expense item per month that we have to manage, and that seems totally doable without losing any equity in the company that we're building, which is really cool. One of the downsides though is that we would have to personally guarantee the loan. That means the real estate that I own would be subject to a foreclosure from this debtor. And that's a scary concept to think about. Now obviously the only way that that would happen was if we default on the loan and the business completely blows up and shuts down.

Right. And that's not really that exciting in any capacity. We haven't specifically talked about whether we want to do it or not because we're not there. We're just talking about the ideas and where we want to go with vision for the company. But if I put my properties in a trust for my kids or something I've got, maybe I can remove it. I don't know. But it's not something that's that exciting for me, but I've done it in the past. When I was running consumer goods, all the merchant processing companies that you talk to are definitely going to want you to fully personally guarantee everything and they'll take every penny of yours if something ends up happening with reserves, or they get stiffed or there's some sort of lawsuit, you're totally screwed anyway. So I've done it in the past a bunch.

It doesn't really scare me that much because, you just believe in yourself and nothing bad's going to happen and you're going to continue to grow. But it's very real. I have a friend up North, San Diego company she was working for, the company did that. They took on debt and defaulted on it and the company ended up closing, guy lost his whole house. It's a very real thing to think about equity partners or venture capitaling or whatever the right terminology is. There's the other option. The pro to that is getting a large amount of money quickly and it's specifically for exponential growth very fast. So if we wanted to take our company to a hundred employees in the next 18 months, that's going to be really good for venture capital. A company like Uber needing to grow really, really fast was a great case study for that because without the capital they would have lost market share and not have been as big as they could have been.

So I don't know if that kind of exponential, serious, exponential, really fast growth is totally right for us at this point. But one of the real benefits of taking capital into that kind of thing is you don't have any personal liability.