With higher interest rates and tightening credit conditions, you may need to get creative on how to tap liquidity for a business investment or real estate acquisition.
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With higher interest rates and tightening credit conditions, you may need to get creative on how to tap liquidity for a business investment or real estate acquisition.
1) Savings cushion. Consider funds on hand. Cash equivalents such as savings or money markets may provide liquidity.
2) Business line of credit. A revolving line of credit allows you to borrow funds up to a pre-determined limit and only pay interest on the amount you draw against it.
3) Home equity line of credit. HELOCs allow you access to the equity in your home or other property. It is flexible and carries lower interest rates than other credit. Some loans offer competitive introductory rates, so shop around.
4) Retirement plan loan. Many employer-sponsored retirement plans like a 401(k) allow participants to borrow against their account balance, with a typical limit of up to 50% of the balance up to $50,000. Consider the specific terms and have a plan to pay back to avoid potential tax and penalties.
5) Cash value life insurance. Permanent life insurance policies you’ve owned for several years allow you to withdraw accumulated dividends or take a loan against them.
6) Securities-based lines of credit. If you have an investment portfolio but don’t want to liquidate holdings to generate cash, you can establish a line of credit against the portfolio value. The composition and risk of the portfolio determine borrowing limits.
7) Family loan. A parent or other family member in a solid financial position may be willing to make a loan. Be cautious about the potential impact to the relationship and be clear on the terms. Formalize an agreement in writing and be aware of minimum Internal Revenue Service interest rates to have the loan not deemed a gift.
8) SBA loans. U.S. Small Business Administration offers loans designed to provide affordable financing, such as those with longer repayment terms and competitive rates.
9) Bridge loans. For short-term financing needs, these loans may bridge the gap. Especially for real estate purchases when you’re buying one property and selling another, these can provide the needed liquidity until longer-term financing is secured.
10) IRA 60-day rollover. With many caveats and cautions, you are allowed once in a 12-month period to withdraw funds from an individual retirement account, and if the funds are deposited back into an IRA within 60 days, it isn’t a distribution. Consider it a last resort when repayment is certain.
