Personal vs. business
Anne from Dayton, Ohio, asks Dave if he views personal debt and business debt the same way. Dave explains that the only real difference between the two is in your mind.
QUESTION: Anne in Dayton, Ohio, has about $210,000 in farm loans that are mostly tied up in land she rents to farmers. It’s the only debt she has, and the rental prices supply her an income of about $200,000 a year. She wants to know if Dave views personal debt and business debt the same way. Dave says yes and explains that the only real difference between the two is in your mind.
ANSWER: Here’s the problem. The law views them the same way. You don’t have any business debt unless you’ve got a $100 million business, because your business debt required you to personally sign for it. So, it’s all freakin’ personal debt. The law is going to treat you exactly the same if you don’t pay a Small Business Administration (SBA) loan as the law treats you with an unsecured personal line of credit. You have personally signed for both of them. You’re still going to get your butt sued, and they’re still going to come take your stuff or garnish your wages. It’s debt!
The only way it’s personal debt versus business debt is in your mind. Now, as far as how we actually attack that, I look at the size of it and all that and try to figure out what’s going on. If you’ve got a $200,000 SBA loan you’re probably going to attack that through the business more than through the personal. Maybe, depending on what’s going on in the business. In your case, you could treat that in Baby Step 6 like rental property.
But let’s say you had a $200,000 SBA loan, and it’s got a second on your house—which they usually have—and the business made $300,000 last year in profits. Well, then I’m going to roll up my sleeves and punch that thing out pretty quick. But if you didn’t pay enough and they foreclosed, and they didn’t get enough out of the land, they’d come after your house. That’s what I meant earlier. But since your house is paid off, this definitely becomes a Baby Step 6 item.
I’m going to live on a little as I can, and pay this off like I was trying to pay off my house. If I made $200,000 a year on investments, and everything was paid for except one of my investments, how quickly would I pay that one investment off? Well, probably in two years. Surely you can live on $100,000 a year.