6. What is a "burn-off" mechanism and how does it work?

There are some lenders that will allow guaranties to "burn-off," be released, or be reduced under a certain set of circumstances. Those circumstances usually involve the passage of time, prompt payments during that time, no other events of default will have occurred, and the business will have to meet a variety of cashflow covenant tests designed to substantiate the fact that the business is doing well and that the start-up business has matured. It may look complex, but it's not.

7. Can nonguarantied financing be obtained for a start-up project?

The answer is yes. There are lenders out there that finance start-up projects with strong business plans and owners who have a demonstrated track record from their past as, perhaps, employees of other companies in directly related businesses. However, the risk that these lenders take is often reflected in the interest rates that they chargewhich, in my opinion, is only fair. If they are taking a risk that only the cash-flow projections of the proposed project, along with the liquidation value of the equipment and other assets that they have secured, will be enough to repay their debt in the event of a business failure, then they should be paid a higher interest rate. You have all heard a phrase that goes something like this: the higher the risk, the higher the reward. As entrepreneurs, it is part of your own make-up and philosophy to understand this risk axiom.

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