Back in 2006, I started a new business as a finance broker. I would help small businesses obtain leases, bank loans and finance receivables via a tool called factoring.
I had studied business in university. My education, unfortunately, was all about big companies. In the real world, most businesses are quite small. I had to learn about small business finance ‘in the trenches.’
Over the years, I learned from my finance partners how they made decisions about where to invest their money. I learned about the documents you need to have in place and how to determine the risk involved in a particular loan or lease to a small business.
Eventually, I took the plunge and started doing my own deals with my own money. Loans and leases are the easiest way to invest in a small business that you don’t own or control.
The problem with being a shareholder in a small business is that profits can be affected based on how the controlling owner or manager decides to run things. A fancy new pickup truck can mean no money left to pay dividends to any minority shareholders.
The beauty of a loan or a lease to a small business is that you can define the payments, calculate your rate of return, and create a contingency plan in case things don’t go so well. For example; in a loan to a business you can have physical collateral. In a lease situation; the property is actually in the investor’s name, they hold the title.
These are the exact reason that when Wall St. invests in small businesses, they do so via loans and leases. I’ve never heard of a Wall St. bank wanting to buy stock in a corner store or local dry cleaner.
Since it’s a proven strategy, it’s the one I follow in my own investing.
To learn more about investing in local small businesses, ready my 2014 Amazon Best-Seller: Invest Local. I describe the different investing scenarios that I’ve been in and the different ways to make smart local investments at superior rates of return while controlling risk.
You can find it on Amazon here: http://amzn.com/1497371198 To buy a .pdf copy, learn more about local investing, buying and selling small businesses, personal finance or to sign up for my FREE weekly small business e-mail, visit my blog site; www.InvestLocalBook.com
David Barnett spends his days helping people buy, sell and finance businesses privately.
This Guest Post was to provided by the books author, David Barnett.