When the Home Bank Closes

This was the title of an article that appeared in the Wall Street Journal on Feb. 1st, and the central theme of the article, that the decline in home values in the U.S. has cratered using one’s home equity as a lending vehicle, should come as no surprise. What is surprising is that the article didn’t really go into some alternatives that startups (and those in the first stages of growth, as were the described companies) might do to offset the absence of home equity.

While we have more ideas in our course E14 at www.theasoe.com, here are some ideas:

1. Factor your receivables, if you have them. You need to have the margin to do this, because banks have actually raised rates for factoring, and the advances vary considrably, from 50% on magazine advertising receivables to 80% on government receivables. Annual rates might be 20-35%, depending on how quickly your receivables pay the factor. Most banks do factoring, but there are better independent sources.

2. Sell a portion of your business. Through our affiliated company, Solutions Forum, we have relationships with Capital Edge Funding, based in New York, that will purchase fairly quickly a portion of your existing business, such as 25%. Their lending rates are low, but they do take a portion of the business. If any readers (and we’ve reached out to one of the subjects in the WSJ article through a SF licensee in San Diego) are interested, send me an email and I’ll hook you up with the Capital Funding folks. There may well be other venture capital firms that operate on the Capital Edge model, but we haven’t found them yet, or they haven’t found us. And we’re pretty visible.

3.  Borrow against your life insurance policy, if you have one. This is fairly painless (unless your policy is with New York Life), and just involves applying to borrow the cash value of your policy. Your statement should disclose how much your cash value is, or you can obtain the figure from your insurance company’s customer service center. However, for the most part, these values aren’t in the amounts of equity loans or selling a portion of your business.

4. Tap the Bank of the Internet. There are various lenders based on the Internet, such as prosper.com, that deal in somewhat smaller amounts (typically $25,000 or less), but their documentation requirements are less, too.

5. Tap friends and family. We put this last in our order, because odds are that you’ve already asked them. However, you might download one of our miniplans and try it again. Possibly your ideas weren’t as well thought out as they might have been.

There may well be some more financing vehicles out there, especially internationally, and we discuss more in our course, but listed above are some starters.