How To Borrow Money

borrowing money

Continuation from yesterday……..Why You Should Never Ask Your Friends And Family For Money)

Borrowing Money:

There are some important pluses as well some noteworthy minuses associated with borrowing money. First, if your enterprise is a huge success the cost of borrowing money becomes somewhat negligible. The best part is; your equity stake or the only part of the whole thing that will make you truly rich remains intact. As such, borrowing becomes your best bet outside of raising money from friends and family or self financing. The downside is; if your business fails you would have to pay everything back with interest. Nevertheless, you have a number of options here.

Borrowing From Friends & Family: This is still your best option. Instead of equity financing discussed in the previous section, borrow money from friends and family based on a fixed interest rate and a predetermined payment schedule. Don’t forget to negotiate with your friends and family in order to get the best interest rate that you can. Sign a contract clearly outlining the loan and terms associated with it. That way there are no questions or fraudulent claims later on.

Home Equity: If you own a home, this is your next best option to get easy, fast and competitively priced financing. And even though getting a home equity loan is a lot harder now than it was just a few years ago, it is still possible. If you have a good amount of equity in your home, it would be advantageous to take out this loan at today’s low interest rates (2014). Of course, discuss the matter with your significant other prior to taking this step. A fixed rate and a known repayment schedule are a big plus here.

Collateral Loans: Just as you can get a home equity loan against your home, you can oftentimes get loans against land, insurance policies, stocks, bonds and numerous other assets. Essentially, such assets act as collateral against the possibility of your default. If you have such assets and would like to use them in order to get a loan, approach your primary bank to initiate a conversation. If they won’t be able to underwrite such a loan, ask your bank to point you to the right people or to a bank that can. In most cases they will.

Credit Cards: Oftentimes, credit card financing is the most talked about option for young inspiring entrepreneurs. Yet, the option has a number of drawbacks. If you have no other way to finance your business and this money would really help you get going, go for it. At the same time, please understand. The interest rates on credit cards are so high that most of the time it would be very difficult to payback. Especially if your business fails. Meaning, if you are to exercise this option, the probability is fairly high that you will end up defaulting on your credit card loans. Ruining your credit in the process.

And even though we constantly hear major success stories of an entrepreneur hitting it big after juggling 10 maxed out credit cards, such stories are an exception and not the rule. In fact, if we are to consider new enterprise 2-3 year failure rate of 70-90% it would be safe to assume that the rest of the Entrepreneurs are not as lucky. As such, only go with this option if you…..