I strongly urge the group to consider options other than a bank loan for funding of this celebration. There are numerous disadvantages to procuring a loan. To examine these disadvantages, we must first consider our motivation in participating in this promotional event. It is implied that one of the reasons that we, as Chamber members, support this promotional event, is the expectation of some return for us as business owners. Whether it is that our standing in the community is improved, the advertising we obtain by participating, increased business contacts, or some combination of all of these factors, we have reasonable expectations that our participation will bring us some reward.
What if there is no perceived return from the anniversary event? Whether it is a success or not, we will still have to pay the full $100,000, plus interest. With a failed event, our $100,000 plus would have been better spent elsewhere, in advertising, for example. The money we would borrow at the bank would also have no practical collateral.
It is better business practice to borrow money against an asset from which we can realize a return that will help repay the loan in a tangible way, such as a building we own and on which we can receive partial rent. It is very difficult, if not impossible, to measure the tangible return from this event. We can be sure that the bank would want to see collateral in the form of our own business assets. Are we, as business owners, willing to put our hard-earned physical assets on the line for an event that could show no real return?
Additionally, we must consider in what manner the interest paid on this loan can be deducted on our taxes. The Chamber of Commerce is not a business entity per se, but a collective of several businesses. The logistics of each business owner being entitled to deduct his or her portion of this interest amount are very complicated. How would it be determined what each entity’s portion of the principal and interest payment would be, and how would this money flow through to each entity’s tax returns? The person who would benefit most from use of this method to fund the $100,000 would be the local tax accountant!
Due to the difficulties inherent in determining the fair portion of the principal and interest payments, the fact that we would be paying a premium on the borrowed funds with no guarantee of tangible returns, and the fact that many of us might not be comfortable submitting our company assets as collateral for this loan, I strongly suggest we find another method of funding this worthwhile event.