Funding Your Business Can Be as Simple as Buying a House
Most small business owners are aware the small business funding is hard to come by. The commercial credit market has drastically slowed down compared to what it before the recession. Getting a business line of credit or even a modest small business loan from a traditional lender is so rare that an entire “alternative lending” industry has sprung up to fill the void and provide businesses with a way to obtain capital without having to rely on big banks.
According to the Wall Street Journal the small business credit market has made a slower recovery compared to other sectors like consumer loans. With many small business owners having less than stellar credit and small businesses lacking the collateral to secure a loan banks are slow to lend money to small businesses.
As a small business owner for over 25 years, I have found a way to fund my business ventures without running out of funding or having to work within the confines of a small credit line. Whenever I needed money, I usually buy a house. In the process of buying and selling a house, I often walk away with cash at the end of the transaction.
I know this seems like an unusual way to get money. It’s downright unbelievable to most people. But once you understand the hidden opportunities in leveraging real estate to generate immediate cash or short term cash, you will be far more likely to go to real estate first before knocking on the doors of your local bank and begging your friendly banker to fund your business.
As a small business owner, I have used a method called “leveraged buyout” to acquire over four hundred income-producing assets that generate both immediate cash and passive income for myself and my businesses.
How to Buy Properties Using Leveraged Buyout
The process is very simple and big companies use this process frequently. Locate an owner of an asset that has value. The owner must be willing to sell and agree to allow the asset to be used as both the collateral for the immediate cash and long-term financing of the asset.
When hedge funds employ this technique, they usually look for an asset that can be leveraged to support the loan amount to take over the business. In some cases, they come up with some money. Most often, all the money comes from other sources like banks, and even cash flow from the business.
Consider Brandi a small business owner who needs a $20,000 loan for her bakery, but can’t get one through traditional funding sources. If Brandi uses the magic of real estate, she could locate a single family unit, preferably one with a small loan on the property or no loan at all. Let’s assume the property will appraise for $120,000. A leveraged buyout offer will be constructed such that the owner of the property gets some cash and the buyer gets $20,000 at close of escrow. The seller will also agree to carry some paper (owner finance) for the rest of her money at an attractive interest rate, either as a first or second loan.
The exact mechanics of constructing the deal is simple to work out and completely legal. It’s usually a decision between buyer and seller with the cooperation of the lender, whether that lender is traditional or alternative.
Don’t be afraid to think outside the box as a small business owner, particularly when it comes to funding your business. When your financial resources are limited, creativity will be one of your greatest allies.
I have used the leveraged buyout process to finance most of my businesses, growing some of them from a few hundred thousand dollars in revenue to several million. And I’ve done so without having to take out a bank loan. Whether you use this method or one of the other methods I teach, real estate is a great way to fund your small business.