How to Get Financing for Your Business – Episode 231

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[00:03] Welcome to the Prosperity Podcast, fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your host, bestselling author, Kim D.H. Butler. This is Spencer and I want to welcome you to the Prosperity Podcast. Now today you’re hearing a different co-host voiced. My name is Spencer Shaw and I’m the new co-host here with Kim Butler. Of course we still have Kim. Are you still there? Yes, Kim is still here. All right. Well, I have been behind the scenes on this podcast as the producer. And because of where this message and the movement is going, I’ve now stepped into the role of co-host or I should just say promoter. I’m one of the biggest fans of this podcast and I’ve just seen that we need to get

[01:06] this message out to more people. So I’m stepping in the role of asking Kim additional questions that we get from listeners and from readers on the site. And I’m here to continue to step into that role and help out. So today we want to start out and talk with Kim about one of the most asked questions and most popular posts that we get on the podcast, which is about business funding. Because of Kim’s expertise, there’s a smart way to do business funding and there’s an old school way. So let’s talk about what was the traditional approach and then we’ll get into the smart way to do business funding, Kim. Absolutely love it. And just before we jump there, I want to just publicly acknowledge how grateful

[01:53] you and I both are to Todd Strobel, our No BS Money guy. He’ll continue to be around and is shifting gears. So we love shifting gears and continuing to grow. And that’s what everything is about. And just again, a public thank you to Todd. So you brought up the word traditional. And as a lot of our listeners know, I truly believe that what we do is traditional. And so if you look at business financing, if you look at funding a business, starting a business, having cash available to support a business, needing to buy equipment, needing to provide for payroll, needing to expand, needing to handle down times, all of the things that go on in a business environment. There are stories after stories of long time businesses that have used whole life

[02:53] insurance as their place to store cash. Shall I take a minute and share a couple? Absolutely. Some case studies or examples would be perfect. Well, they’re well known amongst our community, but maybe not all the listeners are aware of them. And one of my favorites is JCPenney. And so, you know, when we look at the JCPenney stores today, we can kind of laugh and yet JCPenney the man used whole life insurance at various times in his business to both support growth and to handle cashflow challenges. And Walt Disney is another one who used whole life insurance to borrow against the cash value and start his company, which enabled other investors to say, oh, he’s serious. He’s putting his own money in on this deal.

[03:53] And they opted in as well. There’s an additional example with Foster Farms. It’s a Northwest chicken company and eggs and that kind of thing. And they too, on their website, have identified the use of cash value life insurance, borrowing against it and enabling it to get their business to grow and also to support it during down times. And then I’m an example. We use cash value life insurance owned by me personally, and I’ll come back to that in a minute, to support our businesses both again for growth and opportunity, but also for downside. So just think about your own personal situation. You use cash value life insurance as your emergency opportunity fund. That’s what cash value of life insurance is for.

[04:50] We’re talking whole life, the oldest, most traditional type of life insurance that there is. Its first job is to be your emergency fund. And so whatever that means to you, that your family, that is the dollar figure. So your family might want 20 grand, might want 200 grand, might want 2 million. It really doesn’t matter what the numbers are, but whatever your family identifies as its emergency number, that’s what cash value should do. And then the next word is opportunity, right? Because I don’t know about you, Spencer. Do you like saving for emergencies? Well, I like to have it for emergencies, but I don’t like saving for it. Exactly. It’s boring, but we all kind of know we need to do it. So we do it, but pretty quickly you’re going to get

[05:37] past your emergency number. Now, a lot of clients ask, well, do we need emergency number for the business also? And again, that’s up to you. Yes, I personally do for our businesses. I absolutely have a larger number stored inside cash value of life insurance because of the businesses that we run. And yet again, I want to focus on opportunities. And so that’s why I call this cash value, the emergency slash opportunity fund. And when our writer, Kate puts it, I won’t let her just use the word emergency, like it’s emergency slash opportunity, all one word, because we get excited about saving, which means paying our premium and our pay to petition, we get excited about saving for opportunities. And so that’s what enables us to build our businesses is because we have

[06:27] this backup, this security, this savings account called cash value of whole life insurance boring is all get out traditional is all get out. And the typical approach is to go to the banks for that money, but who’s in control of that. Do you control your banks, Spencer? I don’t. Unfortunately, I don’t. And then I have to play by their rules. Very well said. And so when we borrow against our own life insurance, I said, I was going to come back to this. So you can own your life insurance personally and borrow against it. And, or you could have your business own it and borrow against it. And typically we want to work on the personal first. So we own our policies, we own them personally. We borrow against the cash value of those policies and we lend it to our

[07:24] business for either solving cash flow challenges or taking advantage of opportunities. But as we progress, we may also secondarily want to have our businesses own cash value. It’s really a question of where do you want the asset in terms of a balance sheet on that wasn’t very good English. You’re not supposed to end sentences with ons. But where do you want the balance sheet item on your business balance sheet or on your personal balance sheet? And that helps you know where the ownership is of the life insurance. And that makes sense. Now, a question that we’re going to get from listeners is this. They have this money set aside for an emergency and opportunity fund. They may be asking how long do they have to wait until they

[08:15] can access those funds? Yes. And so my recommendation is that you wait until after your emergency number is solved. So let’s say you’ve got a family and they have a business and they say, okay, we need 50 grand for our emergency fund for our family and another 50 grand for our emergency fund for our business. So that’s a hundred thousand dollars. So I would recommend as hard as this is to build up the life insurance cash value to a hundred thousand dollars as their emergency fund for both personal and business before they tackled any opportunities. And then as soon as that opportunity number became available over the hundred thousand, so let’s just make the first step. Let’s say they got to a hundred and twenty thousand and they found a

[09:09] single rental property that they could take advantage of, or in a business, let’s say they had a particular piece of equipment maybe that they wanted to buy, then they can go forward with that 20 grand because it’s over and above the hundred. That’s my recommendation. Now the beauty is of course, that’s just my recommendation. They can do whatever they want. If they’re comfortable drawing down on that cash value to the 5% level, in other words, borrowing 95%, they can do that. Is that the best? No, I believe that peace of mind and an emergency fund are the most important things in a business. So I would recommend they wait till they clear that emergency number and only go for opportunities over and above that dollar figure.

[09:53] Okay. Now, is there a limit to the amount of money that they can use? No, there’s truly no limits either way, minimum or maximum. And I’ll want to elaborate on that. So we understand that using cash value of whole life insurance, we do have a limit called the modified endowment contract and that’s the maximum amount of cash that can be inside a particular policy. It’s a moving number because as the cash value grows, of course, that number has to rise and it has to be in relationship to the death benefit. So cash value is rising, death benefits rising. There’s a number every year that is this modified endowment contract that you don’t want to go over. But other than that, and with the knowledge that you can own as many

[10:39] policies as is necessary, there truly is no limit. Now, some might say, well, there is a maximum amount of life insurance, death benefit that you can buy. And that would correspondingly limit your ability to build cash value. And that’s accurate. It’s called human life value. It’s usually somewhere between 15 and 30 times your income or one times your gross worth. So, again, that’s human life value. That’s the maximum amount of death benefit that you can buy. And yet I will readily publicly say, I don’t know very many people that actually own that much insurance, especially whole life insurance, because now you’re talking some pretty big numbers. And so it’s pretty rare that somebody is going to hit true maximum.

[11:27] OK, that definitely makes sense. Now, why are more business owners not choosing to go this route? And do they just not know about it? Or is it because they’re convinced about following the traditional path of banks and credit cards? So both reasons are accurate. A lot of people don’t know about it. We seriously have had a 50 year period of people not learning about whole life insurance. And yet your second reason is also accurate. But again, I’m going to switch your words around. And it’s because they’re following the typical method. Traditional is our method. JCPenney and Walt Disney, they use traditional methods and whole life, of course, been around a couple hundred years. That’s tradition.

[12:14] Banks and using bank financing not been around that long. I mean, OK, you could say yes, truly back into history. We have used bank financing, but, you know, business owners didn’t used to be able to walk in and get a line of credit at a bank. And obviously, some of them still can’t. So that’s typical financing. That’s typical work is the work that’s been done. I’m going to say since about 1950 or 1960, our work is traditional. And so when you look at these traditional methods of financing, using whole life insurance was a very, very common strategy. Back in the day, like in the early 1900s, and yet most business owners today either haven’t heard about it or if they have heard about it, they’re still skeptical

[13:00] because there is so much press and media and other people like CPAs and attorneys and other, quote, advisors for a business owner that are going to say, no, that doesn’t work or it’s too expensive or you can’t do that or, you know, the myriads of things that they say. And that’s exactly why you’re getting involved, because that’s wrong information. We have correct information that is traditional and we need to get the message out there. Absolutely. So how can listeners, especially business owners, learn more about this and take the next step? So there’s two ways. We have a book on Amazon that’s called Live Your Life Insurance. You can grab it. It’s a quick read. It’ll give you some actual stories of both individuals

[13:46] and business owners that have used whole life insurance to finance a variety of different things, including their emergency opportunity fund. And then if you want more personal help, reach out to us. And we have a special email dedicated to our podcast listeners. And it’s hello at partners number four prosperity dot com. That’s hello at partners number four prosperity dot com. Well, Kim, thanks so much for spending time with us today and for our listeners that want to follow the traditional route through what Walt Disney and JCPenney did. Then you can read the e-book and send an email. If you want to follow the typical route. Well, I guess you have to lace up your shoes and get into the bank

[14:29] and hope to get a loan. There you go. Thanks so much for spending time with us today on the podcast. Thank you for listening to the Prosperity Podcast to take control of your money and have it work for you. Visit us at partners for prosperity dot com. If you liked this episode, make sure you subscribe and leave a review.