Credit is the ability to borrow money. Creditors are particularly interested in your ability to pay it back.
Leverage - Jumpstarts starting point for business. Eat credit interest for higher return from business.
Credit: How and When?
Provide proof you can pay it back, this being in past records and plans to make more money with the loan.
Single parent or lump sum
Lines of credit - Provide big money account. Charge interest whenever you withdraw money, often reward putting money back in
Amortized loans - Kill over time
Balloon payment loans - Pay interest for first few years, pay whole thing at the end
Common costs of borrowing
Interest: Simple or compound
Points: Fee for getting loan
Appraisal fees
Administrative fees
Rates may be fixed or variable
How to compare offers of credit?
Translate payments into PV.
Other means of sourcing capitol
- Leasing - Temporary possession of property
- Outside equity from investors
- Contracts
Equity Investors:
Entrepreneur provides idea and likely management services, and the equity investor proves the money capital.
Investor is likely to have the upper hand in valuing ownership.
Contracts:
Forward contracts: Pay now for service later (lock in price of grain for next year)
Crowdsourcing
Slow Money
Borrowing places demands on the borrower
The assumption made is that the borrower will make more money than the interest of the money they borrowed.
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