It has become incredibly common for startup businesses, entrepreneurs, home renovators, real estate investors, and more to use their assets to raise finance to drive business development and innovation, expand, or simply to renovate the existing asset. It’s about careful assessment of the risk and knowing very clearly what the interest rates of the planned finance are so that determining affordability is key. Using external finance for certain businesses is the only way to get started, but it is still risky and best to know the ins and outs.
What are the interest rates?
Before you sign on any dotted lines or even continue the conversation about finance, you need to know the interest rates, as offered by the lender. This is the actual cost of the finance and will determine exactly how much you end paying back over the course of the finance. Traditional finance options from banks and corporate America has always had this information in small print, look for those who are forthright and open as to their rates and if there is a possibility to adjust and negotiate around these.
Which assets can be used?
You need to know what can be used as collateral, whether business only or if all property can be used as surety for finance. There are professional hard money lenders who provide construction specific loans focused on real estate investment or loans to finish that long overdue renovation. Depending on the amount of finance or type of loan required, you may find that high value and bespoke movable assets can be considered in some cases and by specific lenders.
When is the final repayment dates and all the in-between payment dates?
Knowing when you need to pay back the funds and how much at each repayment is some of the key information that many fail to ask for in advance. It is exciting to have secured the finance to then use it for the planned business growth and expansion, but even more important is the fine print and details as to repayment periods and the exact dates that the lender requires the interim payments to be made. Missing payments will lead to penalties and an increase in the value of the original finance.
Can I afford it now and over the period?
You need to be honest as to affordability both in the immediate term as well as the longer-term, depending on how long the loan term is. There are those asset-based loans as aforementioned for real estate investment that will only last 12 months, and as such, there will be pressure to complete the build and sell the property to repay the loan.
What happens if I can’t pay back the money?
Knowing the worst-case scenario provides a fantastic way to focus the mind and work towards a defined repayment plan or rethink the need for the funds entirely. If the risk is too high and the required surety is something you are not prepared to part with, then either revaluate the required amount or ensure that you have a solid repayment plan.
Having assets, whether movable or fixed, will always be a significant means to accessing finance. Using a commercial property, home, or high-value asset, will make gaining approval for finance a lot easier and heightens the risk. One should be sure to ask all the necessary questions as per the above as a start. Real estate development in the US is a prime example of a business sector ripe for investment, and having access to the right type of finance at the right time will be essential for those hoping to get in on this.