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Granite City Food & Brewery Ltd. Message Board

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  • honda4everrrr honda4everrrr Sep 25, 2006 8:52 PM Flag

    shell game

    <<I would think that management could get some lending institution to believe in its concept and borrow money to it at a lower rate then what the insiders are borrowing money to the company for.>>

    If you think about it, since there are literally no assets available to secure the loan, it's basically an unsecured loan. They don't have the luxury of doing an SBA loan. SBA loans carry a much lower rate because the government is the one promising to pay if the borrower does not.

    If you get some time, go read some notes to financial statements of some heavily leveraged unprofitable public companies and see what kind of financing terms they obtain. Don't forget, the bankers have people to answer to as well. They can believe in the plan, but at the end of the day they still want collateral.

    <<I do not believe it is in the best interest of the stock holders when managers and close ties to the management benefit from financial transactions with the company.>>

    Your point makes sense, but at least with insiders involved, they also have a vested interest in seeing the company succeed. If things get rocky, the insiders are going to be more flexible.

    <<What benefit is it for them to try to refinance the debt with someone else down the road at a lower rate when they would be taking money away from there own pockets by doing it?>>

    The bejillion shares or so that they own will be worth a hell of a lot more than 5.4% of $16M. Assuming they burnt thru the whole LOC, the $864k/yr in interest is a pittance. Wag's 20% would be $172k/yr. He can make over half that back based on the incentives in his pay plan alone without the risk of having to guarantee the debt.

 
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