Blog | Entrepreneurship

Business Financing Strategies: How Smart Entrepreneurs Use OPM to Build Wealth

The key to success is knowing how to use debt to your advantage

summary

• Not all debt is dangerous—smart entrepreneurs use good debt to build wealth.

• Using other people’s money (OPM) is the rich entrepreneur’s secret weapon.

• The real difference between rich and poor? How they use debt.

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Most people have been conditioned to believe that all debt is evil. They've been taught to fear debt, to avoid it at all costs, and to work tirelessly to pay it off. But here's what your financial advisor, your CPA, and even your parents probably never told you: not all debt is bad. There is good debt too.

Understanding the difference between good debt and bad debt isn't just important—it's essential for any entrepreneur who wants to build real wealth. And when you combine this knowledge with the power of OPM (Other People's Money), you unlock the secret that separates the rich from everyone else.

The fundamental difference: Money in vs money out

Let’s keep this as simple as possible because this is the foundation of everything we're going to discuss. Bad debt takes money out of your pocket, and good debt puts money into your pocket.

It's that straightforward. Yet most people—including many entrepreneurs—still don't understand this basic principle.

When you use a credit card to buy a big screen TV, that's bad debt. The TV is a liability that loses value the moment you take it home, and you're paying interest on a depreciating asset. When you take out a loan to buy a rental property that generates positive cash flow, that's good debt. The property puts money in your pocket every month while someone else (your tenant) pays off your loan.

Why most entrepreneurs are using debt wrong

It truly is amazing how many entrepreneurs understand business but completely misunderstand money. They'll bootstrap their way to success, reinvest every penny back into their business, and then wonder why they're still struggling financially after years of hard work.

Here's the problem: they're treating their business like their personal piggy bank instead of treating it like a wealth-building machine.

The three deadly debt mistakes entrepreneurs make

Mistake #1: Financing lifestyle with business debt

You may have seen this a time or two:. An entrepreneur gets a business line of credit and uses it to buy a luxury car "for the business." They justify it by saying they need to look successful to attract clients. But unless that car is generating more income than it costs, it's bad debt masquerading as a business expense.

Mistake #2: Using personal debt for business expenses

Even worse is when entrepreneurs max out personal credit cards to fund their business. In 2020, Bankrate.com reported that average credit card interest rates are in the low 17% range. Beyond that, credit cards often have hidden fees that can cost you hundreds of dollars. Using high interest personal debt to fund business operations is like trying to fill a bucket with a hole in the bottom.

Mistake #3: Confusing cash flow with wealth

This is the biggest mistake of all. Many entrepreneurs think that because their business is generating cash flow, they're building wealth. But if all your money is tied up in your business and you're not using that cash flow to acquire income-producing assets, you're just buying yourself a job—not building wealth.

How the rich use good debt to get richer

The rich use good debt to grow their worth, and they invest in cash flowing assets using Other People's Money (OPM)—both the bank's and investors'.

This is where most people's financial education fails them. They think using debt is risky, but the rich know that NOT using debt is actually riskier. Here's why:

The Power of leverage

When you use your own money to buy assets, you're limited by how much cash you have. But when you use other people's money, you can control much larger assets with much less of your own capital.

Here’s a real example from our Rich Dad education on good debt vs. bad debt. Let's say you have $100,000 to invest.

Option 1: Use your own money: You could buy one $100,000 rental property that generates $800 per month in rent. After expenses, you might net $300 per month or $3,600 per year—a 3.6% return.

Option 2: Use good debt: Or you could use that $100,000 as down payments on five $100,000 properties, borrowing $80,000 for each one. Each property still generates $800 in rent, but your loan payments are about $500 per month. Your net cash flow is still $300 per property, but now you have five properties generating $1,500 per month total—an 18% annual return.

But here's where it gets really interesting...

The OPM advantage: creating infinite returns

Get rich using other people's money, or as we call it at Rich Dad, OPM. This is where entrepreneurs can really accelerate their wealth building.

Using the same example, instead of putting down 20% on five properties, what if you could put down just 5% on twenty properties? You'd use your $100,000 for twenty $5,000 down payments and raise the additional $15,000 needed for each property from investors.

Here's how the math works:

Bank loan: $80,000 per property at 5% interest ≈ $500/month

Investor money: $15,000 per property at 7% interest ≈ $100/month

Total costs: $600/month per property

Net cash flow: $200/month per property

Your split with investors: $100/month each

With twenty properties, you're generating $2,000 per month in cash flow ($100 × 20), which is $24,000 per year—a 24% return on your $100,000. But here's the kicker: later, you can refinance these properties, pay off your investors, get your original investment back, and continue to receive cash flow from all twenty properties. That's what we call an infinite return because you're making money on assets you no longer have any of your own money in.

The entrepreneur’s guide to finding OPM

Don't be lazy. Look beyond your own wallet to raise capital for your next investment. Here are the six most common sources of OPM that smart entrepreneurs use:

1. Traditional bank financing

Banks love to lend money to entrepreneurs who understand how to use debt properly. The key is to borrow money for income-producing assets, not expenses. A loan for a rental property that generates positive cash flow is much easier to get than a loan for office furniture.

2. Private investors

The reality is that most people don't have time to find good deals. Instead, they rely on people with the proper financial education, skill set, and drive to bring deals to them. Once you develop a track record of successful deals, you'll be amazed at how many people want to invest with you.

3. Business credit lines

Unlike personal credit cards, business credit lines can be structured as good debt if you use them to acquire income-producing assets. The key is discipline—never use business credit for consumption.

4. Seller financing

Sometimes the best source of OPM is the person selling you the asset. Many property owners are willing to act as the bank if it means they can sell their property and receive steady income from your payments.

5. Partnership structures

Find partners who have money but lack the time or expertise to find deals. You bring the deals and the sweat equity; they bring the capital. Structure it fairly and everyone wins.

6. Creative financing

This includes everything from lease options to subject-to deals to wraparound mortgages. The key is education—you need to understand these strategies before you try to use them.

The mindset shift: From scarcity to abundance

Most entrepreneurs are stuck in scarcity thinking when it comes to money. They think they need to save every penny, avoid all debt, and bootstrap their way to success. But this thinking will keep you small.

If you use debt without training and education, bad things can happen. But, if used correctly and with your education, it can be a great tool.

The rich think differently. They know that money is infinite, but opportunities are not. When they see a good deal, they don't hesitate to use OPM to acquire it. They understand that the risk isn't in using debt—the risk is in missing opportunities because you're too conservative.

Building your OPM strategy: A step-by-step approach

Before you can use OPM effectively, you need to understand how money works. Below are the steps on how to succeed in this process.

Step 1: Master Your financial education

Study financial statements, learn about different types of investments, and understand the tax implications of different strategies. Our comprehensive guide to managing your money is a great place to start.

Step 2: Clean up your bad debt

Are you buried under credit card debt? Is your car loan driving you crazy? Follow these six steps to get out of debt. You can't effectively use good debt if you're drowning in bad debt. Create a plan to eliminate all debt that takes money out of your pocket.

Step 3: Build Your deal flow

Start looking for opportunities to acquire income-producing assets. This might be real estate, businesses, or other investments. The key is to find assets that generate more income than they cost to own.

Step 4: Start small and build your track record

Don't try to do million-dollar deals on your first attempt. Start with smaller deals that you can manage effectively. Success breeds success, and investors want to see a track record before they'll trust you with their money.

Step 5: Scale up with confidence

Once you've proven your ability to generate returns, you can start approaching investors for larger deals. The key is to always structure deals where everyone wins—you, your investors, and your lenders.

Common mistakes to avoid

Mistake #1: Confusing activity with achievement

Just because you're using OPM doesn't mean you're building wealth. Every deal must be evaluated on its own merits. If an investment doesn't generate positive cash flow, it's not worth doing—regardless of how much OPM you can raise.

Mistake #2: Ignoring the tax implications

Different types of debt have different tax implications. Business debt is often tax-deductible, while personal debt is not. Understand these differences before you structure your deals.

Mistake #3: Overleveraging

There's a fine line between using leverage effectively and taking on too much risk. Never borrow more than you can afford to pay back, even if the investment doesn't perform as expected.

The long-term wealth building strategy

The ultimate goal isn't just to use OPM—it's to build a portfolio of income-producing assets that generate enough passive income to cover your living expenses. This is what we call financial freedom.

Be diligent. Continue to increase your financial education. Work hard. And master the fundamentals of good debt and OPM to become wealthy.

Simply put, successful entrepreneurs follow this path. They started by understanding the difference between good debt and bad debt. They learned to use OPM to acquire income-producing assets. And they systematically built portfolios that generate passive income.

The question isn't whether you can afford to use OPM—it's whether you can afford not to. In today's economy, where inflation is constantly eroding the value of your savings, using other people's money to acquire appreciating assets isn't just smart—it's essential.

Your next steps

Understanding good debt vs. bad debt is just the beginning. If you want to learn more about how to use OPM effectively, continue your financial education. The more you learn, the more opportunities you'll see.

Remember: the poor work for money, the middle class saves money, but the rich use other people's money to buy assets that generate income. Which group do you want to be in?

The choice is yours. But choose wisely—and choose quickly. Every day you delay is another day you're letting inflation steal your wealth while opportunities pass you by.

Your financial future depends on understanding this fundamental truth: debt isn't the enemy— financial ignorance is. Master the principles of good debt and OPM, and you'll join the ranks of entrepreneurs who use money as a tool to build lasting wealth.

Ready to learn more about using good debt and OPM to build wealth? Check out our resources on getting out of bad debt and mastering OPM strategies to accelerate your journey to financial freedom.