Thursday, February 26, 2015

How do I get money to get into business?

This will be a short post because it's near midnight. It's also because I failed the first time I took credit transactions. But I eventually passed so at least I know something.

1. Use your own money. Get money from your own savings and investments. Sell your own property and use the proceeds to finance your business. You might have to start a small business at first, but it will force you to be profitable from day one.

2. Loan from your family and friends. Ask money from your loved ones. While there probably won't be interest and lawsuits, you risk bad relationships if you don't pay.

For everyone's protection, write the terms and conditions of your loan: how much is the loan, for what, from whom, where, when, and how often to pay, if there is interest, if so, how much, etc.

Give and ask for receipts when you pay so you have evidence. Be sure to pay them as soon as possible. Even if you can't make ends meet, pay them regularly even if it's just a small amount. Just because they won't sue doesn't give you the license to abuse their kindness.

3. Ask money from banks. You're asking a loan from a bank, but they won't give it to you without security. Of course, you won't get something for nothing.

First, a bank may ask another person to back up your loan. This could either be a guarantor or surety. A guarantor will only be liable to the loan after you default. A surety will be liable to the loan as if he also made it. If you have a corporation, you might also be asked to be a surety or guarantor to your corporation's loans.

Second, the bank may also ask you to give some property as security for the loan. You will be asked if you have real property first that you can mortgage. A mortgage is a contract where your own property is used as security for a loan. They will annotate on the title that the property is mortgaged. If you pay the loan, the mortgage is extinguished.

If you default on the loan, the bank can foreclose the property. This means the bank sells the property to the highest bidder and uses the proceeds of the sale to pay the loan. Of course, you can probably reclaim the land within a certain period. But why did you have to mortgage your own property if you had money in the first place?

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