How Business Leverage Made One Deal Happen & Saved Another One From Crashing
How To Be Prepared For The Inevitable Setback Every Time It Happens
In Today’s Issue:
🔎INSIDER INSIGHTS: The Banker’s Paradox
🤿A DEEPER DIVE: The Great Deal That Almost Got Away | How Business Leverage Saved A Deal From Crashing
📝THAT’S A WRAP: Help Us Help You!
The Bankers Paradox
I remember it like it was yesterday. In my early 20s I recall coming up with the great idea of going to the bank to get a loan to start a new business. I had tons of excitement, good credit but no collateral and no experience. Nevertheless, I was a quick learner and a hard worker. I thought to myself, “why wouldn’t they give me a loan, if others can do it so can I.”
Needless to say, I learned in less than 15 minutes that there was no way on earth they were going to give me a loan to do anything - especially to start a new business.
It took me decades to learn what I refer to as the banker’s paradox…
The best way to get a bank loan is to prove, irrefutably, that you don’t need the money.
It seems counterintuitive but when put in the proper perspective, it does make sense.
Plainly put…
Banks don’t want to help you get started they want to help you grow (after you’ve already stabilized).
I know what you’re thinking - if I can’t get started, how can I grow?
Bingo! That’s why I’m here - to make sure it doesn’t take you as long as it took me to figure it out.
The Great Deal That Almost Got Away
In the context of operating a system that does consistent business managing deal flow and dollar flow (funding), I run into good problems and bad problems.
The three types of problems relevant to this story are:
More dollar flow than deal flow (good problem)
More deal flow than dollar flow (good problem)
NO deal flow and NO dollar flow (bad problem)
It just so happens that I experience both types of good problems on a regular basis but that’s the game and just how it is…
We’re currently in the middle of refinancing five residential properties. Once we finish these refinances we’ll be ready to reload the pipeline with the next batch of deals.
In this business, a common problem at any given time is being spread out too thin. I found myself with limited capital reserves when a great deal fell into my lap.
Having branded myself as a Real Estate Collaborator, people often come to me when they need help with a distressed property. Consequently, I need to be ready with access to enough funding to seize opportunities when they present themselves. Otherwise, I’ll have to sell the deal to someone else amd make less money.
When this particular deal showed up I didn’t have the funds for the down payment, closing costs, and the first phase of rehab. It was a great deal because the asking price was less than the maximum price I could offer - according to my buy box (investment criteria).
Business Leverage Made This Deal Happen
The seller needed to close fast so I didn’t have enough time to attract another collaborative partner.
But for the previous 6 months I had been building business credit so I would be prepared for just this type of situation. We had just gotten approved for $95,000 in business credit with zero percent interest for 12 months (not that we cared about the interest because the deal could afford it).
Consequently, we were able to fund the deal and make a nice profit in about 6 months.
Business Leverage Saved This Deal From Crashing
Around the same time another deal, a triplex in Chicago, needed major plumbing repairs (on all 3 units) a lot sooner than we anticipated. The good news is we had already built the cost into the deal but the bad news was we didn’t have the liquid funds, at that particular time, because we were spread out too thin.
You guessed it!
Business credit helped us make those major repairs, once again, right when we needed it - with no stress involved.
Key Takeaways:
You don’t need good personal credit to build business credit
Business credit does not report on your personal credit
Use business credit to be prepared for the inevitable times you’re going to be spread out too thin
Continue to build your business credit over time to gain access to more and more capital to build your real estate portfolio and/or optimize your personal credit
Smart utilization of business leverage is essential to winning the wealth game
That’s A Wrap: Help Us Help You!
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