Home and Finance and International Trade

In the class I lay out some reasons why banks are not a source of finance for
a start up company and nothing has changed. But today let me add another
layer with an example. To wit:

"A startling new study," done by MGIC Capital Markets Group
and reported here in the words of the San Jose Mercury News, says "American
homeowners are in the process of rewriting the traditional rules of
refinancing: rather than getting a new mortgage at a lower interest rate,
they are taking out larger loans at rates slightly higher than what they were
paying before.

"After a statistical analysis of recent refinance transactions in a 14
million-loan national database," the article continues, "mortgage market
researchers report that the average borrowers in the current refi boom took
out loans $41,000 larger and at an interest rate 0.6 of a percentage point
higher than they had prior to the refinance."

The current boom may be due to people paying down expensive credit card debt
with cheaper home loan debt (which is also tax-deductible); but a version of
this is nothing new to importers. It has always been the case of established
traders who own homes to prefer to use money from a cash back home refinance
loan for business operations, rather than a much higher rate with a business
loan.

Doesnt this put the owners home at risk? Of course it does, but so does a
business loan, for even if the company borrowing the money for a business
loan from a bank is a corporation, the bank will give no business a loan
without the owner signing over all personal assets as security, much more
than the loan amount in "an abundance of caution" on the banks part. In
protecting your assets from a bank, there is no real advantage in being a
corporation.

I know of an international trader who is currently getting a million dollars
out of his waterfront home for operations even as he has a million dollar
line of credit awaiting him at his business bank. Money is fungible, and the
home loan money is cheaper.

Now, please know I am not advocating anything but study and discussion, so
please do not run out and refi your home to import satin gung fu shoes or
some other wiggy idea.

Never hurry, just know that there are many options, and people get waterfront
homes by being careful, prudent and smart. Let's learn from those who do
well.

John Spiers

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