The very impetus for creative financing was birthed by sky-high interest rates several decades’ ago; it became so hard for most companies to meet the requirements for bank loans that entrepreneurs devised creative methods of meeting the needs of both merchant and lender.
- Using Your Home Equity
This popular form of creative financing allows a businessperson to tap into your home equity and employ it as a line of credit – you can borrow up to 80% of the home’s value this way. It is akin to taking out another mortgage, basically; your home is the collateral and proof of your ability to repay.
This mechanism puts the brunt of the financial liability on the seller (in the short-term, anyway). They keep the note of purchase of the property, and you pay them monthly until the debt is fulfilled. This is a select option that cannot work effectively for sellers who still owe mortgage payments on the property.
- Cash Out Refinancing
This one is similar to the home equity option of creative financing, except you keep the leftover cash from the money you first borrow to pay the mortgage off. The advantage of this over other methods is that it is tax-deductible; furthermore, the cash out refinance is a great source of a considerable amount of quick cash for a small-window opportunity.
- The Traditional Personal Loan
This is pretty much what it says, and has the benefit of protecting your home from being used as collateral. Although you can secure a shorter repayment term – especially when compare to the huge 30-year term of a mortgage – you will be laden with large monthly payments to complete the loan within the 5-7 year average term length.
- Leasing Instead of Buying
Although relatively uncommon, the lease-to-buy route can be very viable in some instances. If you see a great property that you cannot yet afford (perhaps the loan is too large, or your credit score is too low), then you can choose to lease it at much lower payments. Then, down the line, as you improve your credit score, you may be able to secure a long-term loan with excellent terms.
Capital Finance Partners offers a wide range of solutions to fund your next commercial real estate transactions. Contact our offices to learn more.