If you own things, you can sell them. Jewelry, rugs, pool tables, boats, time-shares, second properties–the list goes on. Most people’s largest assets are their homes and cars. Homes are covered later. Here’s what you can do with automobiles.
If you drive a nice, late-model car, you can sell it and lease a cheap one without a down payment. This might net you $10,000 to $15,000 and leave you with a small monthly lease payment.
Borrow against your home: You can borrow against the equity of your home. You can also refinance the mortgage with a new one.
· This is the oldest trick in the book. It’s also one of the best because you can exert almost total control over the process. Here’s how it works: Say you need $50,000, your home is worth $250,000 and you owe the bank $100,000 on your mortgage. You can borrow against the equity, in this case $150,000.
Of course, once the loan kicks in, you’ll have monthly payments. If you’re starting a new business, it’s a wise idea to set aside some of the proceeds from the home equity loan to help make these payments until the business can pay you a steady salary.
You can borrow against your insurance payments such as health insurance, life insurance, disability, auto and perhaps homeowner’s insurance. Write to your agent stating that you wish to take out a policy loan.
Friends and Family: Friends and family are a potential source of capital. If investing with Family and Friend’s money, things can go wrong. Take the following steps to protect everyone from each other:
- Get an agreement in writing.
- Emphasize debt (loans) rather than equity (ownership)
- Pay nominal interest at regular intervals. Do this quarterly rather than monthly.
If you’re starting your business part time while keeping your full-time job, a potentially stable investment is borrowing against your employer’s 401(k) retirement plan. It’s common for such plans to let you borrow a percentage of your money that doesn’t exceed $50,000. The interest rate is usually about 6 percent, with a specified repayment schedule. The downside of borrowing from your 401(k) is that if you lose your job, the loan must be repaid quickly, often within 30 days. To see if this is an option, consult your plan’s documentation.
You may also want to consider using the funds in your IRA. Within the laws governing IRAs, you can actually withdraw money from an IRA as long as you replace it within 60 days. This is not a loan, so you don’t pay interest; rather, this is a withdrawal that you’re allowed to keep for 60 days. A highly organized person could possibly juggle funds among several IRAs. But if you’re one day late–for any reason–you’ll be hit with a 10 percent premature withdrawal fee, and the money you haven’t returned will become taxable.
Credit Cards. They’re not terribly creative. But credit cards are quick and easy. In a perverse way, they are also cheap. That is, a minimum payment of $50 per month can hold down a whole lot of debt. Of course, if you only make the minimum payment, your balance continues to grow, and if the business fails, you have to pay the piper. But if things go well and the business pays off the balances without missing a beat, then you look back at your early credit card financing with a nostalgic fondness, and perhaps a twinge of longing for simpler days.
Equipment Leasing
What It Is: Equipment leasing is basically a loan in which the lender buys and owns the equipment and then “rents” it to a business at a flat monthly rate for a specified number of months. At the end of the lease, the business may purchase the equipment for its fair market value (or a fixed or predetermined amount), continue leasing, lease new equipment or return it.
Appropriate for: Any business at any stage of development. For start-up businesses with no revenues, “small ticket” leases, those of $100,000 or less, are feasible on the personal credit of the founders or owners—if they are willing to make the monthly payments.
Supply: Abundant. Of the billions of dollars individual and institutional investors pour into the capital markets each month, a good hunk finds its way to leasing companies that use these funds to purchase equipment on behalf of small businesses. With more and more money flowing into the markets, leasing companies are flush with capital. As a result, they are eager to do business and respond to competition with lower monthly rates.
Best Use: Financing equipment purchases. Leasing can also finance the soft costs often associated with equipment purchases, such as installation and training services.
Cost: Lease financing is generally more expensive than bank financing, but in most instances, it’s more easily obtained.
Ease of Acquisition: Easy for leases of less than $100,000. An application for a small-ticket lease is generally no more complex than a credit card application. Leases for more than $100,000 require detailed financial information from the business, and the leasing company conducts a more thorough credit analysis than it would for a smaller transaction.
RANGE OF FUNDS TYPICALLY AVAILABLE: UNLIMITED
Finding an equipment-leasing company is easy. Almost any equipment a business could conceivably need offers a lease option. Thought it’s not apparent at first glance, the company offering the lease financing is not the same one that is selling the equipment. The company selling the equipment simply makes a direct referral to a leasing company with which it does business.
It’s a good idea to get a quote from the leasing firm referred by the company that wants to sell you the equipment. The quote should be competitive. After all, the company selling products wants to sell as many as possible, and it surely doesn’t win any points by referring a leasing company that gouges its customers. But it also pays to get another quote. Usually, the company selling the equipment works with more than one leasing company. Or ask a friend or a business associate for a referral.
As a final point, when looking for a leasing company you should understand whether you are talking to a broker—the person who simply structures deals, then gets them financed through any of the leasing companies he or she works with—or a leasing company that is actually putting its own funds on the line.
There’s nothing wrong with brokers. The situation is analogous to working with an independent insurance agent. He or she might have intimate knowledge of the marketplace and know where to go to get the kind of insurance, or lease, in this case, you need. In theory at least, this may generate savings in excess of the broker’s fees. But as when dealing with insurance agents, you should always keep one thing in mind when working with a broker
