Too Good to be True?

Why on earth would an investor offer $5MM when the original business plan only asked for $1MM? Redraft the business plan based on $5MM funding. How would you spend the money differently? Play out the best case and worst case scenarios with $5MM in funding. Present these cases to the potential investors and see if they walk away when assets are legitimately deployed.

BTW, what would happen to your house, stocks, other investments if you were personally held liable for a $5MM default? A personal guarantee isn't just a piece a paper. Think of the consequences. If all you have is a broken down car, are 3 months behind in rent, and are leveraged over your head, who cares? Get in line with the rest. If, on the other hand, you have great credit, lots of assets, cash in the bank, then kiss them all away. You deserve the consequences if you fall for this scam.

The most likely scenario is the investors place $1MM in escrow, ask you to guarantee the entire $5MM loan, pay out the original $1MM through their sham front man, then fold the company leaving you on the hook for the whole $5MM. As an officer of the corporation, the shill will have super-majority voting rights, his vote representing 51% or more will trump minority investors (You, your friends, family, and everyone else that got you this far).

There is no free lunch. If you take this deal, you are pigging out neck deep from inside the trough. Take off the rose colored glasses, come back to earth, stop the meds, take a cold bath, gather your thoughts and ask yourself:
Why on earth would someone offer more money than I asked for?

Read the following blog for more information:
http://www.shariahfinancewatch.org/blog/

specifically the article titled The Shariah-Compliant Finance Myth

How to Pay Your Mortgage with a Credit Card

The US Federal Trade Commission might sue GM over claims of paying back their loans in full. Despite claims made by Chairman and CEO Ed Whitacre in recent TV ads, General Motors is using taxpayer money, not operating income to repay government loans. Here are the details.

http://www.foxnews.com/politics/2010/04/23/gm-hot-water-ftc-truth-advertising/

* GM received $49.5 billion — $14.5 billion pre-bankruptcy and $30.1 during bankruptcy.
* Of the $30.1 billion, the $16.4 billion was placed in an escrow account.
* $2.8 billion in the escrow account was used to resolve Delphi’s bankruptcy reducing the escrow account to $13.7 billion.

In return, the government received:

* 60% stake in the new GM.
* $7.1 billion in interest bearing debt ($0.4 billion was paid back in July 2009).
* $2.1 billion of preferred stock.

GM used TARP money that was placed in escrow by the Treasury Department to repay the remaining interest bearing debt of $6.7 Billion. In other words, the Treasury approved the repayment of the loan with the escrow fund, which is similar to using credit cards to pay the monthly mortgage.

The government hopes to recover the remainder of their investment by selling common stock after GM’s initial public offering that is intended to take place later this year.