Using Home Eq. loan for mat purchase

[RBHII]

I know the financing component of buying a mat has been discussed at length, particularly those who have debated the merits of a 100% leveraged purchase versus those who have advocated at least 50% down to make it work.

How do you all feel about using home equity as a component of financing a mat? I'm looking at buying 2 mats, and using a combination of methods to pay for it, as follows:

400K purchase
150K Cash
150 SBA financing
100 Home Equity

Now, the purpose of adding in the home equity piece, versus a larger SBA loan, is quite honestly to be able to stretch some of the payments out over a time period as long as I want (only have to pay interest on eq. loan if you so choose). The cash flow for the mat would allow the payments to be made on a larger sba loan, I guess I'm just being ultra conservative.

Pros and cons of doing this?

[mike]

I guess there are no correct answers on this.

"ultra conservative" is a GOOD thing !! (in finance, anyway :-)

I guess the mats are a "package deal", I would be nervous about cutting my teeth on two mats at once, but I'm just a nervous kind of guy :-)

[pete f]

I have used my home equity like a reveloving credit line, well, it is. At 4% interest it makes alot of sense. As long as your cash flow numbers are working, the way you want to set up the deal could work well. Instead of an SBA loan, just ask the seller to hold the note for 5 years and make ther payments to him.

[RBHII]

Thanks Pete, I know you've been a strong advocate of 50% down....do you consider using equity as part of that 50% target (given how little impact it has on cash flow with the option of interest only payments)? I assume what you are encouraging people to stay away from is a high note payment over short years, ie 5 years....from financing 75% or the like.

[RBHII]

Mike, on the 2 mats....yeah, package deal, and with 2 miles of each other, so some economy of scale....I agree with you, would rather cut my teeth on one, but it's a package deal and I'm considering it due to the fact that both stores are good cash generators, with newer equipment (all less than 5 years old).

[Anonymous]

Money is the ultimate fungible commodity - get it where ever it is cheapest.

[PeterH]

And if the business fails and they take your house...???

[RBHII]

Pete H....well, in summary, that would suck for sure, and likely tick my wife off quite a bit! But seriously, isn't the tradeoff between cost of financing and that risk? Also, from what I've found, any bank that will lend you money will want to put a second out on the house if you have equity in it anyway, so same risk, higher cost of funds. Unless you are suggesting that one only buy a mat if doing it with 100% cash?

[Anonymous]

You likely will have other personal guarantees as well - go for the cheapest source of money!

[JBTcajun]

Every time I've signed loans that were stretches it was always
_________________ _______________
xyz company xyz company
JBTcajun president MrsJBTcajun secretary


_________________ __________________
JBTcajun guarantor MrsJBTcajun guarantor

Using a home equity loan doesn't scare me If I can make the note without the project the money is going to. Otherwise think long and hard.

[Gary C]

Sounds like you are buying my mats. The distance apart and the sale prices are pretty close to what I would be asking. As far as financing it sounds like you are in pretty good shape. As long as the #s work go for it. Having them close has worked out well for me. And as you may know I have financed both my mats 100%. The bank will make you sign you house, wife , kids and anything else you have away anyway so why not us the house to your best advantage.

Good luck with it. Post the #s if you can and we can help with that end too. I would be curious how close they are to mine. If you want pm me.

Gary

[RBHII]

gary C, check your pm, will share more #'s! thanks

[CharlieS]

I agree. Go with the cheapest money. I have always been required to give a personal guarantee on any loan, business or personal, that I have ever received. But, always pay the home equity first!

Charlie

[pete f]

Thanks Pete, I know you've been a strong advocate of 50% down....do you consider using equity as part of that 50% target (given how little impact it has on cash flow with the option of interest only payments)? I assume what you are encouraging people to stay away from is a high note payment over short years, ie 5 years....from financing 75% or the like.

The others here are right, and we all think alike. Use the cheapest money to do your deals. You seem to have cash, and assets, 2 key things needed to make it all work, I have thought about changing my tag line : "It takes money to make money"
I am not against 100% leverage, but most can not do it, so why talk about it. I set most my mats up as me loaning the company the start up, so I get paid interest on the loan. In fact most my mats were financed 100%, 50% by me, 50% by the seller. I only collect interest, no principle,. This is the same as a home equity, and works quite well, cash flow wise, so your question is answered.