Borrow money that you never need to repay.
When you borrow money by obtaining a bank loan,
it is referred to as "Debt" capital. Another way
to finance a business is to use "Equity" capital.
This method is not borrowing, but exchanging the
right to receive certain financial benifits in
exchange for providing capital.
When money has been obrained from a lender you
are required to pay back over a period of time
both the amount originly borrowed along with an
amount of interest. To put it another way, you
have to repay more than the sum actually
borrowed, and therefore borrowing money has a
cost involved. This cost must be less than the
advantage you will gain from borrowing the money,
and show a profit to you as well.
Equity finance is different in that it is money
you can raise which does not need to be paid
back. It is funding in exchange for part of your
company's assets.
Equity capital is best gained from going public
and selling shares to investors. Whilst you are
selling i.e. shares, you are not actually
disposing of any assets, so that the money comes
in without the need to give anything up in
return. You should retain at least 51% of all the
company shares issued to give you the final say
in how the company is run.
With Equity capital you can raise up several
million dollars of operating capital without
having to dispose of either your stock or assets.
Once raised, the money can be used to pay debts,
salaries, buy property or any project that will
increase your company's profitablity.
On the subject of keeping raised money
indefinately, the same can be achived by taking
out loans to repay existing loans. This means you
will have to pay interest on the money you
borrow, but as long as you make a profit greater
than the cost of financing these loans, this will
be worthwhile.
To facilitate this situation, apply for credit at
double the number of banks from which you would
actually need to accept loans. If you applied to
say 12 banks for loans of $10,000 each, but only
took out 6 loans, you would have raised $60,000.
If these loans, for example. are short term 60
day loans, you then go to the remaining 6 banks
that you did not take up loans with and accept
their loans in order to pay off the first 6 bank
loans. This way you continue indefinately to use
the $60,000 raised; the cost to you being the
interest which should always be less than the
finacial advantage you will gain from having use
of this money.
The whole idea of using borrowed money where
interest is paid is to give you the opportunity
to take advantage of situations to make profits
you would have been unable to make were you not
able to raise borrowed cash. Always ensure the
profits gained from such advantage are greater
than the cost, or interest paid on loans.
Eventually, the business transactions that have
taken place due to this borrowed money should be
enough for you to pay of the loans, should you
desire.
An example of how you could benifit from these
loans would be in the property business. Buying
property, perhapes reposessions at a well below
market price, making them good and filling them
with tenants. The rents paid more than pay the
interest on the loans, and the property, duely
improved, can be sold eventually to make a
capital gain, leaving a handsome profit at the
end of the day.
See also our guide: Huge profits in property
using other people's money.
