# Entrepreneur of the Week # Post 5 Entrepreneur of the Week - Post Number 5 Funding Responsibility Good funding can take us as…
Entrepreneur of the Week - Post # 5
Responsible financing
Good financing can take us a few levels up and save us a few good years upon reaching our destination, while poor financing can crush us.
So what is the definition of good / bad financing?
Many will answer - the level of interest and loan terms.
Many will answer - the level of interest and loan terms.
This is true but very partial.
Long before the interest rate and loan terms, you need to know how to plan and integrate the loan deep within our plan.
A "good" loan at the lowest interest rate, even with 0% interest, will crush us if we are unable to cope with it and / or have not planned well enough for the least good times.
When you take out a loan, you have to look ahead, not just today, and manage different scenarios that can affect us (for example, the Corona crisis, layoffs, tenants not paying, etc.).
I will give you examples from my personal loan management experience:
- Every loan I take, I make sure it doesn't pass 75% of the income, which means: a $ 750 loan will be backed by a $ 1,000 income.
If, after our economic mapping, we manage to save a few thousand shekels a month, you can increase the loan amount against the income, if it is advisable to reduce the loan against the income so that we have money aside for each scenario. - It is advisable to leave a small cash register aside for 3-6 payments, and all this is fine, so that if the transaction does not work until six months, you can give it back. (As to why the deal doesn't work for six months, it's really a question that needs a different approach.)
- Ask yourself how many months you can hold such a loan without the rental income and without using the emergency fund. (Connecting this period with the emergency fund will last you for 6 + x months).
- Check in advance whether under the loan conditions you are given tools to deal with a personal / national crisis that allows you to postpone payments and some flexibility (this does not always exist).
- Incorporate the loan into all scenarios in your personal business plan and follow up.
For those who don't have a plan, go back to post # 2 a few times - and go back.
It is important!
Financing sources:
Banks, training funds, pension funds, various financial instruments (provident, savings, etc.), residential / low-mortgage / non-mortgage property, private lenders, investors, partners and I'm sure I missed a few.
Financing for Foreigners in the United States on One Foot:
Generally speaking, it is not easy to obtain good financing for foreigners in the United States, but it is possible.
The main reason is that as foreign nationals who do not have SSN (Social Security November, such as ID ID we know from Israel), it is difficult for us to accumulate credit history and this makes it difficult for banks to know about our repayment ability.
The big banks usually don't deal with foreigners when it comes to financing.
A good way to get a mortgage / refinance is to approach local banks in your area of activity. A local bank, which refers to small banks operating only in the target country, is generally more flexible.
There are also financing funds that allow foreigners.
Most often, the interest rates we receive will be higher than an American citizen with a good credit history because of the risk component that the funding body takes into account.
Major US financing types and payment deployment options
1) purchase mortgage.
2) Refinance - Taking out a loan on an asset in our possession and / or cycle / increasing an existing mortgage.
3) Of course there are other types, but we will concentrate on the first 2.
It will usually be easier in the refinance process than a mortgage to buy as the asset is already in our possession for a period and some assets can also prove revenue, which will make the financing body more relaxed and confident in the asset management and repayment ability.
With regard to payments - we will most often use the payment schedule which will consist of 15-30 years principal and interest, when in 15 years we are constantly strangling ourselves but letting our tenants liquidate the debt faster, and in 30 years enjoying more cash flow but eliminating debt more slowly.
There is an option to get a mortgage with interest payments only.
When will we use it?
Especially in projects whose value increase is expected to be significant in the short term and / or in projects that would prefer to have a higher current flow.
When will we use it?
Especially in projects whose value increase is expected to be significant in the short term and / or in projects that would prefer to have a higher current flow.
Of course, everything has a price! It is important to remember that when selling the property, we will have to repay the full loan amount - since we did not offset the debt - and emphasize the risk in the event of a decline in the value of the property (as with any type of financing but here the effect is greater).
Finally,
Every loan is different as every man and woman's situation is different in terms of income and financial strength.
A 10% loan is also good for a 20% return deal (example not to be alarmed!), Of course if that is our only choice and the deal will really yield the expected.
A 10% loan is also good for a 20% return deal (example not to be alarmed!), Of course if that is our only choice and the deal will really yield the expected.
Attached is a screenshot from an Excel file that I build to my investors for loan planning (look for comments).
Believe I gave little know and understand how to plan a good loan.
If I gave you one little tip - I won.
If I gave you one little tip - I won.
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