The Real Estate Investor Business Line of Credit

Real Estate Investor

If you are an active Real Estate Investor you may qualify for a business line of credit that will allow you to purchase, rehab, flip, wholesale or buy and hold distressed properties as if you were a cash buyer. With your credit line you are a cash buyer. This offers you many advantages including the ability to purchase properties on a moments notice and you will not have to qualify for financing. You can purchase through auctions where you get great deals. You can buy bulk real estate transactions and become a true wholesaler. This program is available for those who are active in residential or commercial investing and are established business entities such as “C” corporations or LLCs.

The Line of Credit

This is actually a revolving business line of credit secured by commercial real estate. This means the loan is made to a business entity not an individual. The collateral can not be owner occupied residential property. So in fact any company that owns real estate can qualify for the program.  This B.L.O.C. (Business Line of Credit) works like a revolving credit card were you can borrow up to the maximum credit limit, pay the loan down monthly if you choose to and then borrow up to the maximum limit again. Unlike your personal visa or master card, there is a term. At the end of the term the line is renewed, paid off, or refinanced into a different program. Also, unlike your personal visa or master card the rates are very good. The typical rates range from 4% to 8% depending on the financial strength of the company.

 

The Qualifications

There are two main qualifications for the B.L.O.C. product. First is the collateral. The lenders set the credit limit up to 65% of the property value as long as the cash flow of the business will support the loan. Secondly is the cash flow. The business must have been established for an absolute minimum of three months and have sustainable regular cash flow. To determine the cash flow the underwriter reviews the bank statements for the past three to six months to determine the ability to repay the loan. This is how the maximum credit limit is established. You will note there is no mention of personal credit score or personal income. This is a business loan and there is no minimum credit score requirements. The rates may be a little higher than the banks but the credit line is not based on your credit score and you do not have to be in business for years to qualify.

The Advantages

There are many advantages to have a line of credit versus a term loan on your property. The major advantage is cost and as a business person cost is key to all of your decisions. This is how you save money with the business line of credit. The actual up front costs to do the loan are cheaper; there is a brokers opinion used to determine value vs appraisal and the application fee is lower or non existent. The closing cost are lower; there are little or no junk fees like underwriting and / or processing. The biggest savings are in the interest payments. If you have a term loan you pay a maximum payment each moth based on the full amount of the credit limit. The line of credit you only pay interest on what you owe. And if you decided to pay down your loan you would have to apply again and incur upfront and closing costs assuming you could get approved again. The costs of the line are much lower than the loan.

The  next major advantage is flexibility which is none existent in a loan and it helps the Real Estate Investor and business owner move quickly to take advantage of opportunities at the lowest costs. Plus the property used as collateral can still be leased for positive cash flow and it appreciates and the equity grows.

Finally 

As a Real Estate Investor or Small Business Owner you could take advantage of a Business Line of Credit even without perfect personal credit. This will help you grow your business and of course make more money.

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Small Business Financing Solutions

The Request

A small business owner recently contacted me at my business credit coach for a hard money loan. He wanted to borrow $170,000 on a property valued at $360,000. His goal was to build a garage to house and work on his truck, as he owned a transportation business.  The borrower went to numerous sources to be dragged along for 3 months with no solutions. The borrower requested a hard money loan our small business financing solution includes a business revenue loan, equipment lease and business credit card bundle.

The follow up solution of developing business credit may get lost in the need for immediate action, but it is the most important solution provided.

The Facts

After carefully probing the customer to understand exactly what he wanted to do and the assets he had at hand. I ascertained these facts:

  • The property in questions was his primary residence (not usable for hard money loan).
  • The borrower had a recent bankruptcy less than one year old.
  • The borrower has been recently sued (hence the bankruptcy).
  • The borrower recently changed the business from a sole proprietor to an LLC (11 months ago).
  • The borrower only needs $80,000 to build the garage, would like $20,000 for cash reserves.
  • The borrower has monthly cash flow of $40,000 to $50,000
  • The borrower has free and clear equipment valued at $90,000 only 30 months old
  • The borrower has personal credit score of 660 plus
  • The borrower has been in business for 10 years

The Solution

Though we could not do the deal the way he requested (no one could) we were able to provide these small business financing solutions for the customer:

  1. Business Revenue Loan                       $40,000                          (4 days)
  2. Equipment Loan                                   $40,000                          (15 days)
  3. Business Credit Card Bundle             $20,000                          (10 days)
  4. TOTAL FINANCING                           $100,000                       (15 DAYS)
  5. Follow up solution build business credit to be separate from personal credit that will allow borrower to easily get line of credit for $50,000 to $250,000 based solely on the payment history of their business.

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