1) You mentioned trading as the main purpose of your loan. However, I noticed the length of time between loan origination to maturity is less a month, which only makes sense if you have trading counter-parties already lined up. Is there other forms of trading your business engages in? If not, how does your business model maintain the type of traffic that is needed to replicate or increase past customer traffic to your LBC listings? In other words, how can I, as an investor, be reasonably certain that, going forward, you are able to maintain the necessary inventory turnover rate to pay loan and interest? This is the first risk factor I would like some clarification on.
Well the buy back has been the bottleneck in this strategy. Normally my sell volume is considerably higher than my buy volume. To offset this I have been doing research as to where I can buy coins from on a regular basis at stamp or below. For example, the local cash trade in new york is such that even new guys don't pay higher than 1-2% above stamp. I am actively trying to build relationships with users from that market. Eventually I would like to open a branch in locations like that so I could have employees making buys for me on a regular basis.
The real reason I asked for shorter terms was to build a rep. I see this as me putting in work(maybe taking a little too much risk) now for higher interest at shorter terms so that I can later get larger loans at lower rates and much longer terms. At that point I would have established a clear history of repayment and can gradually drop my interest rates and lengthen terms.
2) What trading strategy are you employing to hedge against the volatile bitcoin/usd ratio, which is crucial to ensure my loan (for the trading side of your loan) is protected? Even if you make great 8-30% margins on LBC or elsewhere, getting the fiat into BTC can have additional fees that eat into your great margins, and volatile market prices will definitely be a gamble. This is the second risk factor I would like some clarification on.
The way I am trading the volatility(downward trending market) doesn't matter as much. If I am selling for cash deposits I can sell at +8% consistently and have access to the cash for buys pretty much immediately. I normally have my buy ads running at -10% to -5%(current running at bitstamp because I ran low on coin) and have a couple go to guys that I can buy from at any point for stamp to +2% for cash deposits. If the price happens to drop more before I am able to make a buy I've profited on my btc loans by default.
In an upward trending market I plan on using icbit to help secure my sells. This will require more research on my part but essentially if I sell off 10btc today I should buy 10btc worth of futures contracts. I could also theoretically do this for a downward trending market and sell contracts.
Basically I plan to reset daily so the price from day to day shouldn't matter as much. If I sell off 10btc today I need to make sure I buy back a minimum 10btc today.
Business loans:
Yo mentioned:
"I plan to allow users to buy/sell bitcoin directly to/from my company and have a method for lenders to track their loans to/from the company."
Those words are music to my ears. But I just wanted to make sure I am understanding this properly. Is this a move toward establishing a direct competitor in the fixed-btc exchanges (like bitsimple, local bitcoin) or is this a move to limit the liability and create transparency by having an open system to match the loans to the actual transaction it financed?
I want to essentially be a fixed btc-exchange and offer users to loan the company funds directly(and eventually borrow from me) but an open system that matches loans to transactions is a great idea!
Also, which state/country will this llp/llc/s-corp/etc. be incorporated in?
US - Missouri and I was going to go with a llc
I think the amounts you asked for makes you severely undercapitalized in cases of emergencies or business downturn. When I used to valuate businesses of all sizes, I noticed small businesses failed at such a higher percentage vs. middle - large sized businesses. My managing partner always mentioned to me that the reason small businesses have a hard time getting a loan isn't because of their revenue stream or business infrastructure. It was because they are always one accident or one unforeseen issue away from failing to to meet loan obligations.
You are 100% correct here. This is a problem that I had not really thought of because for the most part things are running smoothly. I am always open to new ideas on how to improve and protect my self/my investors.
I'd like to see a small sample size of these trades you do and verify them, and would like to get my questions addressed. If not and others are willing to finance you, ignore my due diligence.
That seems like a more than reasonable request. I could send some from the csv export from the lbc dashboard?