July 6, 2021 6 min read
Opinions expressed by Entrepreneur contributors are their own.
More often than not, loans are perceived negatively. The mention of debt is often accompanied by horror stories of bankruptcy and other theaters of financial distress. It’s no wonder, then, that people tend to consider loans as last-ditch efforts at paying for emergency expenses. But is this bad rep justified? After all, if a loan can save a dying business, and in turn, help secure a profit, it’s a savvy and often indispensable move. Of course, there are also instances in which borrowers are faced with not being able to pay off a loan, but as long as liabilities and forecasts are carefully planned, good debt can be a lifeline, and can be used additionally for investment organizing.
When you “leverage” debt to maximize a return on an investment, you are, put succinctly, using borrowings at a lower rate to fuel a return at a higher rate. Though there is a risk of losing capital, using debt to gain profit is an often underrated means of making money. Once you review your risk appetite and perhaps change preconceived notions regarding loans, it’s possible to turn debt into profit-making investment instruments.
Five relatively safe ideas to get you started:
1. Flip a House
A tactic that typically applies to the buying and selling of homes, flipping can also be done with rented units. The idea is simple: find apartments below market rate, make improvements and sublet them at a higher rate, and the difference between the rent and the sublet price becomes profit. If you find the perfect apartment to flip but need urgent funds to seal the deal, it can make sense to get a loan.
You can, of course, apply for one at a retail banking institution, but that process can be tedious and time consuming. A quicker alternative can be a home improvement loan from an online lender. With these funds, you can do everything from whole-unit renovations, to repurposing an existing unused space or a spare bedroom in your apartment (then sublet it), to turning your garage into a rentable music studio or co-working space. You could also use a quick loan to buy furniture and other essentials that might be on limited-time discount. The goal is making money from the sublet sooner, which offsets interest paid on the loan.
2. Invest in Precious Metals
Prices of commodities like gold and silver typically fluctuate according to the economy, and are frequently directly proportional to it. For example, mid-2020 gold prices reached record highs due to economic uncertainties, even though the stock markets were crashing. This is, in part, why gold and silver are considered reliable investments. The trick, not surprisingly, is to buy on a dip and sell atop a surge. Based on past evidence, a post-dip turnaround typically takes just a few months, and those who routinely invest in precious metals for profit are quickly able to predict changes with a good level of accuracy.
Given this investment’s inherent time sensitivity, you need to have money ready for deployment. In this case, depending on how much profit you expect, it might be a good idea to get a quick (preferably same-day) loan and pounce on an opportunity. Delay can cost you substantially, eating away profit and defeating the whole purpose of the loan.
3. Buy Cryptocurrency
Bitcoin, Binance, Ethereum, Dogecoin and many more cryptocurrencies are competing for investors’ attention and money — offering occasionally head-spinning (if wildly unpredictable) profit margins in the bargain. Again, the principle remains the same: buy low and sell high. If you’ve been good at investing in the stock market, predicting how geopolitical events will affect the economy or simply identifying trends, you can apply corollary skills to trade cryptocurrency effectively.
This, too, is a time-sensitive affair, with the slightest delays amounting to massive declines in profit. So, a loan at the right time can propel a bank balance like few other investments of the moment. That said, retail banks might not be the right channel to get loans for this purpose, due to the urgent nature of the investment and the inherent caution with which they analyze it. But, a credible lender that can process short-term loans quickly might be the difference between a massive profit or an underwhelming transaction.
Similar to cryptocurrency trading, you could also invest loan funds into forex trading or stock trading.
4. Grow Your Company
If you are a small business owner, you know this all too well: to make money, you need to invest in the enterprise. To grow at scale, reach more customers and sell more products or services, your company might need a quick and well-timed cash-induced boost. This injection could be used to hire better talent, change brand identity, go digital, expand office space or double down on a marketing effort.
Most of these actions are short-term, in that they will yield results fairly quickly. Such limited-impact, short-term actions can benefit from small business loans from traditional banking or finance institutions, government bodies that promote small businesses or legitimate online lenders. A suitable percentage increase in sales or employee output can pay for itself in a few months, making the loan a profit-making undertaking.
5. Learn a Skill
One of the most underrated investments is up-skilling yourself. The job market is volatile, and requirements keep changing. To keep relevant, broadening skillsets is essential. Now, getting a loan to learn a new skill might not sound appealing at first, but such a move can open avenues for a higher paying job or promotion at a current one — a relatively quick and enduring return on investment.
The key is to learn skills that are of genuine interest. When you truly enjoy doing something, you are more likely to become good at it, then monetize it. Though computer programming might be a lucrative career choice, if you don’t enjoy it, you will be miserable, impacting productivity in the process.
You could also use this trick to start a side gig — freelance projects like selling art or handicrafts from home. For instance, you could learn to crochet or whittle, then make unique and financially viable products in your free time.
In all these scenarios, take care to learn all loan terms and conditions, only borrow from a trusted source, have realistic expectations when it comes to profit and plan for a worst-case scenario; even if you are unable to make a profit, you should still be able to repay the loan.