I want a loan. My business partner doesn't.March 13, 2009: 10:15 AM ET
How to get capital when you are your partner disagree on the risks.
C. Miranda, Urban Revitalizers, Boston
I am a partner in a small, certified minority business, and have been managing it for the past 10 years. My firm has just won a statewide contract to conduct assessments of real estate throughout the state. It is our first large contract, and it requires some start-up capital. I have applied for several business loans to carry us through until our first pay-down. The problem is that my business partner of 10 years is not willing to sign, saying that she wants to be able to continue to pay the bills if everything fails. I have used all of my credit cards to get us part of the way there, but still need more capital. My credit score is high. Can someone tell me how I can get over this hurdle?
By Emily Maltby, CNNMoney.com writer
You've got two things that many businesses are wishing they had right now: An ironclad government contract and loan options.
"In a way, that makes this a no-brainer," says small business coach Marian Banker of Prime Strategies. "I think you'd benefit from a discussion about your visions and goals for the company, because you and your partner may not be on the same page."
While business partners' personal goals for what they want to get out of the business can differ, your aims for the business itself should be the same. "If you can identify where the disconnects are in your mindsets about the business - which is probably where the problem lies - the rest of your issues will be solvable," Baker says.
When you sit down with your partner, talk about measurable goals. Your partner may think that the business can't afford certain risks , while you think that it can. Or you may have different ideas about what counts as a "calculated" risk, Banker says. Ask your partner what her growth plan is for the business, as an alternative to this contract. If she has a good idea, make sure you're open enough to entertain it.
But let's face it. Partnership issues aren't always that civil. You will each make put forward your best case, but sometimes disputes can't be resolved through negotiation.
There are some remaining options that might satisfy you both. The first is for you to ask your bank for a short-term loan without her signature.
"For the bank to consider that appeal, you would have to produce the signed contract, plus a separate business plan for just that project, which includes the projections of revenues and income after expenses that would be generated from the project," says Porus Sagar, an Orlando accountant and current SCORE counselor. "The underwriting standards of the bank will determine whether her signature is necessary, and you might be able to negotiate the extent of your liability with the bank."
There is a strong chance that the bank won't accept this option. If you both own exactly equal stakes in the company, the bank will usually want both of you to sign for the loan. One option is for your partner to give up a percentage of her ownership and give you the majority stake in the business. That will both compensate you for the additional risk you're assuming, and give the bank one managing partner to work with.
Sagar and Banker say that giving up ownership can be a sticky situation - emotions can hinder progress. Sagar has seen many partnerships dissolve in ownership disputes. He suggests asking an objective, independent attorney to help adjust the capital ratios.
"The lawyer will also help decide if the ownership arrangement is best as a permanent change or just for this project," says Sagar. "To create less friction, you could opt to take on additional liability for the moment; then when the job is complete, you could keep all the profits from it but rework the capital interest back to her. Take advantage of different levels of compromise that may be available."
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