We spoke to Nick for the Courier Workshop podcast. Listen above or read the story below.
‘So we took out a collateralised loan, I think it was for $100,000 because this included some extra money to manage the shipping of the kiln and the installation of the kiln. It was a five year term, so we would pay a fixed amount each month. I think the interest rate when we took out the loan was about six or seven percent, but it's gone down since then because it's a variable rate and interest rates have gone down since we took out the loan. We would pay, I think it was around $2,000 a month, and then we actually paid back the loan early. So we paid back the loan after three years, just because our growth kind of exceeded what we thought it would. Since then, we've taken out a second loan, very similar terms, for a second large kiln. We got the loan last year, put in the order with the kiln manufacturer and the kiln was just shipped to us.’
How was dealing with the banks and going through the whole process of getting the loan in the first place?
‘So it wasn't too complicated to get the loan. I think the bank that we worked with is more used to business models that are a lot more cut and dry. So our banker spends a lot of time giving loans to doctors offices or orthodontist offices, and so he knows sort of what the financial model for a new orthodontist chair is – it’s pretty easy for them to underwrite those loans. But for us, we really had to educate them on what our business is: they came to the studio, we gave them a tour, we showed them the products that we made and our client list, which is, you know, a big asset to our company. We sell to hotel chains like the Four Seasons, the Waldorf Astoria, the Rosewood, so I think that kind of gave us a lot of legitimacy.
But the most important thing we showed them was our history of growth. We'd always run the company in a very financially conservative way, so we never took on too much debt and we always paid it back. We were profitable most years in the history of the company – there is a very strong growth trend there. You know, it didn't take a lot of convincing, we just had to educate them on what our business was and and show them that we would be able to pay back the loan.’
Finally, what do you see as the key benefits of debt financing over equity?
‘I think all that we hear about on the news are these start-ups that have insane valuations and 10x their revenue every year – and I think it's important to realise that the majority of businesses out there are not doing that. You know, they're growing sort of slow and steady. They have really solid financials, and a lot of times the goal is just to run a really strong business without having to achieve insane growth. I think equity financing puts so much pressure on businesses to grow so quickly and that's really the only story that we hear in the news. I think it's important to know that, you know, there are a lot of businesses out there that are just growing at 20% or 50% and just providing really good products, providing a really good environment for their employees. In a lot of cases, debt financing is the better tool for those kinds of businesses. I just think those sorts of stories aren't really told enough.’
Find out more about debt financing and sign up to the Workshop podcast and newsletter to get more deep dives into key business concepts.