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It isn't just about that. You need industrial policy. And not just stuff like the CHIPS act. In China a small outfit can get financing and open a factory anywh

It isn't just about that. You need industrial policy. And not just stuff like the CHIPS act. In China a small outfit can get financing and open a factory anywhere. You can't do that in the USA. You are too small for the lenders or investors who do such things to care yet too risky for traditional financial institutions to risk anything on you. If I want to buy a couple of CNC machines and start making a product in my garage I have to hope I have enough room on credit cards to do it because I cannot get the money from anyone. Doesn't matter if I have a good idea. Doesn't even matter if I have some initial customers/orders. If the government is going to piss away money then at least piss it away on that sort of economic activity. If you can present a coherent business plan or product design then lend people the capital secured by the equipment and/or IP with generous repayment terms. Set progressive milestones to unlock additional financing... for example give a gov backed credit account at SendCutSend. When you have an engineer's report on the prototype to turn in you unlock financing to order your first CNC machines. Develop a pipeline. A script to follow. Something a person can follow to get big enough to become a real business. Grant time to pivot if necessary. If that doesn't work then ultimately the government takes possession of the equipment. Make it clear so long as you return everything in good working order then in X years you're eligible to re-enter the program. Then hand that equipment over to the next person in line.

arjie 20d ago
Wait. I remember reading about this. Doesn’t SBA 7a cover your use case? I’m sure there’s an SBA loan category for you. It’s backed by the machine. Recently they changed the valuation of things or something.
- xenadu02 19d ago
  SBA loans are just regular loans from a bank, except with government backing. You need a high credit score (680 at least) to even have a hope and 10% cash to put down if not more. Unless you can prove experience managing a business forget it. You have to demonstrate other outside income (hope your spouse works a good job) or enough cash in the bank to cover living expenses for a year or more. If the business is going to be a new venture you have to put together financial projections that demonstrate how you are going to start making money and it had better be quickly. You will not get 2 years to ramp up. And if you fail to meet projections they can call in the loan. Oh and by the way: you must sign an agreement to take unlimited personal liability for the loan. So if the business fails they get to take away your savings, retirement, even your house. In fact if you don't have significant assets they will put a lien on your house as part of the loan closing! In China if you want to start a factory in an area the national government lists as desirable the state-owned bank will almost shove money into your hands. Repayment timelines are extremely generous. You mostly don't take on personal liability - instead they focus on the assets, land rights, etc. That is if the business starts to fail you will own machinery, a lease on the land, and/or a factory building so they are content to secure the loan against those things. When the state bank underwrites your loan in China they only care that your project is technically viable and you have some kind of plan. They assume you will find a way to be profitable and worst case they can take the factory away from you and give it to someone else. As long as your plan makes sense - if your plan says you're going to make robot arms but your plan doesn't mention buying any CNC machines or hiring any electrical engineers you will have difficulties. And if you want to build a factory to make lathes expect serious pushback - the Chinese government considers that sector to be "over-capacity" so they are reluctant to finance new factories for such things. Not that it matters because unlike the USA if you aren't a Chinese citizen then you can piss right off because you aren't going to be approved for anything and you aren't allowed to own property anyway. Not that any court would ever side with you in any case either. The entire philosophy is different and I'm saying we should adopt the Chinese philosophy. Instead of letting risk-adverse private banks make the decision the government should make the decision. And instead of focusing on credit score and making you sign an unlimited personal liability contract - do the opposite and secure the loan against the actual factory, machinery, and assets. Build a network of such so if a business fails you can turn around and offer it to the next suitable applicant who can bootstrap their business instead of selling everything for pennies on the dollar at auction.
  - arjie 19d ago
    Huh, what you’re describing is what I assumed it was. I thought it was secured against the asset itself. I can see why they hesitate somewhat. In the US, this is usually a covert bailout for a vote bank. Grant loans for their machines and then the state takes possession and discharges the loan and you have a bailout in disguise. But you’re right. Everything is in execution and for critical manufacturing it makes sense to pay the fraud price to boost it.
    - xenadu02 14d ago
      You aren't wrong - the loan itself can be secured against machinery. But you will still be forced to sign unlimited personal liability for the loan itself unless the business is already well-established and profitable in which case they'll take it out of the business instead. If the business fails the bank will pay someone to come take the machines away then dump it at the nearest auction. If something happens to the machine no one involved cares because you eat the liability (good luck proving otherwise when you're broke). ($LOAN_BALANCE - $AUCTION_PRICE) + $REPOSESSION_FEES + $AUCTION_FEES + $LOAN_DEFAULT_FEES = $YOUR_LIABILITY. If you dig into the stats actual startups and small businesses mostly don't use any government small business programs. The few that do get used are most often gamed by much larger companies who "contract" with RandomJoe Inc who exists only to claim to be a small business.

arjie 20d ago

Wait. I remember reading about this. Doesn’t SBA 7a cover your use case? I’m sure there’s an SBA loan category for you. It’s backed by the machine. Recently they changed the valuation of things or something.

xenadu02 19d ago
SBA loans are just regular loans from a bank, except with government backing. You need a high credit score (680 at least) to even have a hope and 10% cash to put down if not more. Unless you can prove experience managing a business forget it. You have to demonstrate other outside income (hope your spouse works a good job) or enough cash in the bank to cover living expenses for a year or more. If the business is going to be a new venture you have to put together financial projections that demonstrate how you are going to start making money and it had better be quickly. You will not get 2 years to ramp up. And if you fail to meet projections they can call in the loan. Oh and by the way: you must sign an agreement to take unlimited personal liability for the loan. So if the business fails they get to take away your savings, retirement, even your house. In fact if you don't have significant assets they will put a lien on your house as part of the loan closing! In China if you want to start a factory in an area the national government lists as desirable the state-owned bank will almost shove money into your hands. Repayment timelines are extremely generous. You mostly don't take on personal liability - instead they focus on the assets, land rights, etc. That is if the business starts to fail you will own machinery, a lease on the land, and/or a factory building so they are content to secure the loan against those things. When the state bank underwrites your loan in China they only care that your project is technically viable and you have some kind of plan. They assume you will find a way to be profitable and worst case they can take the factory away from you and give it to someone else. As long as your plan makes sense - if your plan says you're going to make robot arms but your plan doesn't mention buying any CNC machines or hiring any electrical engineers you will have difficulties. And if you want to build a factory to make lathes expect serious pushback - the Chinese government considers that sector to be "over-capacity" so they are reluctant to finance new factories for such things. Not that it matters because unlike the USA if you aren't a Chinese citizen then you can piss right off because you aren't going to be approved for anything and you aren't allowed to own property anyway. Not that any court would ever side with you in any case either. The entire philosophy is different and I'm saying we should adopt the Chinese philosophy. Instead of letting risk-adverse private banks make the decision the government should make the decision. And instead of focusing on credit score and making you sign an unlimited personal liability contract - do the opposite and secure the loan against the actual factory, machinery, and assets. Build a network of such so if a business fails you can turn around and offer it to the next suitable applicant who can bootstrap their business instead of selling everything for pennies on the dollar at auction.
- arjie 19d ago
  Huh, what you’re describing is what I assumed it was. I thought it was secured against the asset itself. I can see why they hesitate somewhat. In the US, this is usually a covert bailout for a vote bank. Grant loans for their machines and then the state takes possession and discharges the loan and you have a bailout in disguise. But you’re right. Everything is in execution and for critical manufacturing it makes sense to pay the fraud price to boost it.
  - xenadu02 14d ago
    You aren't wrong - the loan itself can be secured against machinery. But you will still be forced to sign unlimited personal liability for the loan itself unless the business is already well-established and profitable in which case they'll take it out of the business instead. If the business fails the bank will pay someone to come take the machines away then dump it at the nearest auction. If something happens to the machine no one involved cares because you eat the liability (good luck proving otherwise when you're broke). ($LOAN_BALANCE - $AUCTION_PRICE) + $REPOSESSION_FEES + $AUCTION_FEES + $LOAN_DEFAULT_FEES = $YOUR_LIABILITY. If you dig into the stats actual startups and small businesses mostly don't use any government small business programs. The few that do get used are most often gamed by much larger companies who "contract" with RandomJoe Inc who exists only to claim to be a small business.