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PostPosted: Thu Jan 27, 2011 6:32 pm 

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User avatarReal Value
 
Revised on November 21, 2011 to update for recent changes in bond borrowing limits and "costs" of defaulting on debts owed:

Debt in business can be a powerful tool to help companies to grow. Growing your business using "other people's money" is very useful, and since there is not yet an option to issue stock to other players from your company, debt is the only practical and official way that is available for companies to expand their business. Although it is possible to sometime borrow cash from other players, most loans are not done between companies and are done via issuing bonds in Simunomics. (Note: non-system borrowing and lending between players is not approved of by game admins and can result in you being banned).

Unfortunately, many players seriously underestimate the cost of borrowing via the bond market, and using debt unwisely can be very costly and can even slow the overall growth of your firm, rather than accelerating growth when the high cost of debt reduces profitability and can even make it impossible for a business to continue to expand operations (due to unpaid debt).

Therefore, it is important when using debt to use it wisely to help your business grow as rapidly as possible.

The cost of debt short term in Simunomics is high, even if the interest rates seem very low. Interest rates shown in the game are PER DAY, and are COMPOUNDED (which means you are paying interest on interest owed on money you borrowed, so the cost in total adds up to a large number fast). You can easily end up paying 20% or more in total interest over the relatively short life of a loan, and short loans of only a few days can have much higher daily interest costs due to the fixed fees charged for loan origination (paperwork and other fees required to get the loan initially).

On the other hand, after the loan matures, there is ZERO INTEREST on any loan that is in default (not repaid on time). This means after the initial loan period, you can borrow money for a long, long time essentially for free, other than the fixed initial interest cost of the loan during the initial loan period. However, to make it difficult to do this without consequences, the game designers have made it impossible to accept building or research or ticket invoices when you have overdue debts, and you also can not expand or convert buildings with overdue debts, so it is important to plan ahead and make sure you won't need to buy buildings, research, or tickets via invoice while you have bonds that are in default (overdue and unpaid).

Since interest cost in the short term is high, but after default is zero, it is most efficient and effective to take out a LARGE LOAN for a LONG PERIOD of time. You are much better off to borrow as much money as you possibly can and then build intensively for the next 20 days before the loan goes into default and building is no longer possible (due to unpaid debts). Then, over the next few months, use your expanded buildings to produce and sell more products than you could before you took out the debt and expanded your properties, saving the cash to be able to eventually pay off your debts a few months later than the time you got the loan, and then do another month of expanding and building and borrowing of a much larger amount of cash when you build again.

The amount of money you can borrow is limited by the size of your buildings, and is not affected by the price you paid for them if you bought them. Having a high fixed asset value used to allow you to borrow more money, but that is no longer true, so there is no benefit to having high fixed asset values now.

Once you do decide to repay this in default loan, your credit will be terrible. Before you borrow money again in any volume, be sure to borrow small amounts of capital (like 10 bonds worth) and repay it and then do this again over and over until you get your credit rating back up to AAA+. Then, you can max out you debt again using a low borrowing rate for a larger loan and build or buy more buildings to further increased fixed assets as well as the income earning potential of your firm.

The worst possible way to use debt is to borrow, repay, borrow, repay and to keep debt always current. Short term borrowing is expensive and not a good way to grow your business efficiently. If you are going to borrow, do it for as much cash as you can get and keep the loan unpaid for as long as you can, and expand everything for the 20 days before the bonds become past due, and then run your buildings after that to make money to later repay the bond debts.

One last point, you can send and receive invoices for products and raw materials while you have overdue debt or taxes, and you can buy tickets on the ticket market, so these will not be a problem for you with overdue debts. The only restrictions are on invoices of special items, like buildings, tickets, awards, and research. Those can not be accepted until you get your overdue debts paid off.


Last edited by Professor on Mon Nov 21, 2011 11:41 am, edited 1 time in total.

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PostPosted: Thu Mar 31, 2011 12:44 pm 
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User avatarFoodaganza! Inc.
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I'd like to thank Real for this guide, I used it (with his help) and it helped me a LOT.

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PostPosted: Fri Apr 01, 2011 8:59 am 

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Transformers used it also to give his company a large boost, and several other players have used it as well. This certainly helped me to get a strong boost in the game about a year ago when I used this technique myself to increase my ability to expand my business.

A lot of the credit for this idea should also go to Habars, who helped me to better understand how debt can be used in the game at much lower cost than I had been using it before learning from him.


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PostPosted: Sun Apr 24, 2011 11:15 am 

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This strategy has been effectively used by APCE, and he even has some creative ideas that he suggested to me that even make this work better than I had expected that it would.

APCE, Transformers, GEC Corp, and Manufactura have all used this strategy with great reults to leverage their business.

If you have any questions about how to do this effectively that have not been adequately explained in the text above, please feel free to message me in game.


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PostPosted: Sun May 01, 2011 4:04 am 

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User avatarAPCE Production
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If you have questions, and don't want to ask RV (he's a busy dude), you can ask me too, i'm always open to help out.

APCE

And btw, this is insanely effective, to the point where my company has almost caught companies that started around the beginning of the game, I started a year late, and have not bought many tickets (less than 1000).

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PostPosted: Fri Apr 20, 2012 10:49 pm 

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User avatarFive Enterprizes
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APCE Production wrote:
If you have questions, and don't want to ask RV (he's a busy dude), you can ask me too, i'm always open to help out.

APCE

And btw, this is insanely effective, to the point where my company has almost caught companies that started around the beginning of the game, I started a year late, and have not bought many tickets (less than 1000).


100 Tickets is still worth alot

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PostPosted: Fri Apr 20, 2012 11:34 pm 

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User avatarIMPOSSIBLE
Abalesk Chamber of Commerce
I too use same idea for growing my business and you can see now i am well establish in small time.As i didnt purchase any ticket yet from system but this idea is quite good to any starter company for quick growth.


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PostPosted: Mon Jan 21, 2013 2:10 am 

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User avatarReal Value
 
This method does not work as well now, as there have been some changes in the game that reduce the amount of debt that you can use to leverage up your company. You can still use debt, but the amount you can use is lower, and the cost of defaulting on loans is higher (it is not as easy as it used to be to get your credit rating up after a default).


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