If 2020 has taught us anything, even the most “secure” companies and industries are laying people off. Those left behind regardless of position have been asked to do 2x or 3x as much with the same compensation. Maybe now, you have the itch to do your own thing!
What is Considered Smart Debt, in Starting a Business?
Debt without question is a natural course of doing business or being an entrepreneur. Just like our personal lives, there is good debt vs. bad debt. Let’s break it down:
- Credit card balances and cash advances. No, never.
- Kabbage. This service will lend based on accounts receivable. High lengthy costs.
- Factoring. Same concept as above, but even more expensive.
- Loan against 401k. No, no, no. Did we mention NO!
- Title loan on your car. 32% interest (varying by state) is a no-win situation.
- Borrowing from friends and family. Only a good idea if you never want to talk with them again.
- SBA loan. Sounds simple on paper. In reality, it is very difficult to get. You have to not “need” the loan to get it.
The above are perfect examples, and yet still more exist. Another risk is using the wrong assets to start your business.
Good debt, or smart debt, is about managing your risk and money.
It is about taking the pressure off your business to have the ability to pay you immediately. It allows you to have a low-interest rate and a long term that can be tax-deductible. Good debt? That is your home.
People would say never put your home on the line! Well, the reality is your home is always on the line. Whether you utilize smart debt, good debt, or refinance.
Here are a couple of ways you can utilize a refinance:
- Your ability to pay off all your debt to a single payment. Savings of a hundred, maybe even a thousand plus per month.
- Securing your best asset (your home) to the lowest possible payment with cash out!
- Keep your cash in the bank. Let’s say you have $40,000 in savings and $40,000 in available equity. Cash is king, keep that in your bank balance. Borrow $40,000 in the form of a refinance to start and run your business.
Experts are experts. There is smart risk vs. high risk. There is smart debt vs. bad debt. Refinancing your home for rate and term or cash out is the most powerful business tool you have (outside of yourself). Use good debt – smart debt – to build your business and your dreams.