When discussing entrepreneurship, being in control is a crucial aspect of successful business ownership. Today we will dig deeper into how to use a cash value focused life insurance policy to fund portions of your business.
A Closer Look at Entrepreneurship & Business Loans
Business owner A is the typical entrepreneur who, based on the financial instruments at his disposal, has limited options. This forces him to seek financing through a traditional bank. After being determined as “qualified” he is then told how much can be borrowed, at what cost, on what the terms, and the consequences of delinquency. He is likely using personal assets as collateral. The bank is in control.
Business owner B is empowered with options from her cash value focused whole life policy. Rather than going to a traditional bank, she can access her policy for a loan to finance her business needs. Unlike the situation of owner A, when owner B turns to her policy for a loan she is not asked what the loan is for, when it will be repaid, or how she intends to do so. Her credit score is not a prerequisite for qualification, and the loan is not registered on the open market as an outstanding liability. The death benefit of her life insurance policy is her collateral. She is in the driver’s seat.
Assuming that both business owners take a five year loan for $25,000 to fund the acquisition of equipment needed for their business. Let’s see who would come out ahead.
Business Owner A:
Loan amount (from a traditional bank): $25,000
Interest charged @ 5%: $3,307 (amortized over 5 years)
Compound interest earned while the loan is outstanding: $0.0
Compound interest earned during life of business: $0.00
Business Owner B:
Loan amount (from a cash value focused whole life policy): $25,000
Interest charged @ 5%: $3,307 (amortized over 5 years)
Compound interest earned while loan outstanding (compounding @ 5%): $6,907
Profit while the policy loan is outstanding: $3,600
Compound interest earned during life of business (assuming $25,000 compounding @ 5% for 25 yrs.): $59,659
Both business owners accomplish the same fundamental goal of acquiring a loan in the amount of $25,000 for entrepreneurship. Business owner B comes out far ahead simply by accessing the loan utilizing her policy. Read more about why business owners need whole life insurance. This simple step enables Business owner B to continue to earn compounding interest on the $25,000 while she has the loan outstanding as well as for the life of her policy.
She gets the benefit of utilizing capital for short term needs without diminishing long term compounding growth on her cash value. Her money is working twice as hard for her and she maintains a position of control. To create the business of your dreams you must be in a position of control.
Ryan Lee
