Using Great Credit In This Economy

[HCBailly]

As of April 2, 2009, I will have been in business for 2 years, and have developed my business credit, in addition to my already 750+ personal credit score. From what I’ve heard, “2 years†is the magic number banks are looking for before they are even willing to talk to me. How can I use that to my advantage to increase my cashflow?

The interest rate on my mortgage is already pretty low, and rates haven’t dropped enough to offset the costs of refinancing. Besides, at the time, I put 20% down, so I’m not paying PMI. For me to avoid paying PMI on the refinance, I would have to put even more money down, since the value of my home has dropped.

Another thought (albeit unpleasant) was to refinance to get cash out to pay off other debts. Banks don’t seem to want to do home equity loans over 80% LTV, but they are willing to go higher on cash out refinances. The best I’ve found is 95% LTV. But would this be worth it?

There are two debts that I could use the loan to help pay off or pay down. First, my business vehicle loan. Between the increase in payment on my mortgage and the PMI on top of that, I break even on the deal, so that doesn’t make sense.

Where it might make more sense is to pay off the business loan I used to purchase the business. I can’t pay it off entirely, but if I took out as much cash from my home as I could get, my net increase in cashflow would be $700/month. That sounds pretty good, until I considered another alternative.

Since I’ve been in business for two years, my bank is willing to talk to me about getting a new business loan to replace the old one; in effect, refinancing that loan. It would effectively take my old loan and re-stretch it out five years. This would increase my net cashflow by $500/month without putting me in more debt than I was before. On the down side, this does mean I would be in debt for two more years, but that’s certainly better than 30 years on refinancing my home.

Of course, the ideal solution would be to simply increase business, so that I don’t have to go into more debt or remain in debt for a longer period of time. However, I am trying to prepare for a worst case scenario where business does not pick up in the spring. If that happens and I do nothing about my budget, then bankruptcy would become a very real possibility. Even going into debt for two more years sounds like a better alternative than that, no? Getting a new business loan would greatly improve my chances of survival.

On a side note, I’ve also taken other measures to reduce my overhead. Namely, cutting unnecessary expenses like cable TV (which I hardly use anyway) and my cell phone. Although for the latter, I plan on getting a pre-paid cell phone, which would be more economical for me.

It seems that my best alternative is to simply go with a new business loan to replace the old one, as it maximizes my cashflow with the least amount of long-term damage. What do you think?

Thanks for the discussion

 

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