Ep 310: Should You Practice Financial Leveraging or Bootstrapping?

Sean: Would it be advisable to highly leverage your business? I think this is making your business collateral. Would it still be considered good debt? I'll go ahead first and answer this one. With leveraging your business, not a lot of banks would allow your business to become leverage especially if you're starting up. They won't even lend you money. You have to be established for at least five years. Show them your ITR (Income Tax return). They know your bank account, so they know if you're making money or not. Before you're able to secure a loan and it's not going to be the loan amount you want. It's going to be less than that. So it's pretty tough even loaning money from the bank when you're a startup. But if you have a big brand, for example, Ford. The logo of Ford was actually turned into collateral by Alan Mulally, who is the CEO of Ford, the one who turned it around. And he used that blue logo literally as collateral, and so the bank loaned him money for that. So that's an example of using your business as leverage. But otherwise, if you don't have a brand that powerful, I doubt you can use it as leverage. And would it be considered good debt? Good debt or bad debt will still depend on what you use the debt for, not on what your collateral was. So even if you use your house as collateral, but you use it as collateral to buy a boat, for example. Strictly speaking, if it's a boat that you're going to use for personal reasons, it's not an asset. A boat depreciates and saltwater corrodes it. So that's a bad debt because you use your house as a collateral loan for a boat. But if you're going to use it to start building, then yeah, that's good debt. Youtube: https://www.youtube.com/leadershipstack Join our community and ask questions here: from.sean.si/discord Facebook: https://www.facebook.com/leadershipstack