I am self-employed and have a few small businesses. I keep rotating money through personal loans into each business and was managing fine until the downturn, which affected my projects. My debts are mounting. How can I put all this on track?
Personal loans come with very high interest rates and it’s indeed an alarming predicament for you. However, you should start planning and searching for funds to ease yourself. You could utilize any investments you may have made so far, such as shares, securities, fixed deposits and insurance policies. You can pledge these as collateral and obtain a loan against them. Interest rates on these loans would definitely be lower compared with interest rates on personal loans.
If you own a property, you can opt for a loan against property. The loan amount would depend on the value of the property and can range between Rs1 lakh and Rs3 crore. Also, the tenor of this loan can be as long as 20 years. Though it means you will be paying interest for a longer period, these loans come with lower interest rates. You will be able to generate enough funds to close all your loans in one go and even have enough money left for your business.
Also, try and see if you can merge all your businesses into one holistic business plan aiming for consolidation and higher profits. This will help you manage your overheads better.
I recently inherited a lot of funds from an aunt. Around the same time, I finalized a deal on an independent house that I wish to buy. The loan process has also been initiated and I am in a dilemma as now I don’t really need a loan. Some friends are telling me to put the money I have inherited into equities and go for the loan. What should I do?
You need to set your priorities. Here are some options you could explore. One, you can invest the entire inheritance into equities and let it simmer over a span of 10-12 years before you reap the benefits, while you go ahead with the loan. Two, you could divide the inheritance in two halves. One half you can invest in mutual funds and equities, the other you can use to make a large down payment so that you ensure your loan amount is reduced by more than half of what you intended to take in the first place. Three, you could make an outright purchase and allocate the equated monthly instalment (EMI) you had planned to set aside for the loan towards equity investment. Four, you can buy two houses and let out one for rent, while you buy the other on loan. You can use the rent money to pay off your EMIs. Investing in real estate is always a good option, provided you do it judiciously. Both the stock market and the loan market are prone to volatile changes, hence evaluate all your options well, before you take a call.
Adhil Shetty, CEO and Founder, BankBazaar.com
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