Self-Finance Your Business
Money you lend to your business is money that you can easily lose. Reduce,
or even totally eliminate, the risk of losing your investment in your
business and simultaneously create a defensible mortgage against your business.
The wrong way to finance your business is to directly invest in your business;
whether to buy the corporate shares (equity) or as a loan to your business.
If your business fails, you are then a stockholder or unsecured creditor.
In either instance, you'd probably reclaim little or none of your
Still, you can secure yourself with the assets of the business so your
claim has priority over claims of the businesses' other creditors.
To solidify your mortgage against your business requires additional steps.
For instance, a bank could directly loan your business. Your business
would pledge its assets to the bank as collateral. Your bank will lend
to your business if you pledge sufficient personal assets to collateralize
the loan. As a fully secured loan, your bank has no risk. If your business
fails, your bank as its secured party would be the first creditor repaid
from the liquidation. After repayment, your bank would release to you
whatever personal assets you pledged as security.
Don't invest or lend money to your corporation without first reviewing
this strategy with your attorney. Structuring your investment in this
manner gives you two advantages:
- What you invest in your business will be better protected.
- You indirectly control the mortgage against your business and indirectly
protect your business against lawsuits.
YES, YOU CAN LOSE EVERYTHING!
You may think that your wealth is safe and that you don't need protection.
But don't delude yourself and accept reality — for every 60
minutes you spend making money, spend 60 seconds thinking about how to