"Some people do call us hard money lenders and loan sharks, and I take offense at that," said Don D'Ambrosio, whose company, Oxygen Funding Inc. in Lake Forest, advances cash against a company's billings. "We really do help a lot of businesses."The mortgage for young couples is also about 7 - 8%. What young couple can pay these interest rates? However, since real estate has become so expensive, with 30 - 100% increase in the last two three years, it would have been and exellent deal to get in debt and buy real estate. Most probably we are facing a controlled inflation inthe coming years, so getting in unindexed debt makes sense. But one needs much courage. If the worse comes to worst - what happens? Loans can be rescheduled (we called that "bicicleta" in Argentina). In the past 50 years inflation was a given, all the currencies lost value. One can bet that it will be so in the future.
Saturday, July 31, 2010
Getting into debt
I had been offered a small business loan from some State fund. There are various ways of repayment but basically it is based on 8% p.a. fixed interest in shekels. Since the shekel is inflating at 3% p.a. it comes to about 5 - 6% p.a. net interest rate. I think it is exorbitant, excessive - what small business makes more than 6% on its investment? Since my business is based on my personal work, time and not capital is my limiting factor. The repayment is considered a business expense - does that make it attractive? The truth is that more than half of these loans get unpaid, and the small businesses do not survive. Since the State is the guarantor, banks do not persecute the debtors, who are not there anymore. I know serial loan-takers who have gone through several businesses and enjoyed the experience. In would call thses 8 - 10% rates "hard money" (even if they are State promoted loans). It is well known in America: