Buying a real estate property is a pretty expensive venture, and not a lot of people can do it without a loan. The traditional way is using a conventional mortgage loan. Most of the time, to secure financing, people use their personal credit. But that’s not the only option, as you can also utilize your business credit for such a cause.
With a good profile, business credits can even get you financing for a house. So, it’s becoming a very popular strategy among people who are interested in investing in real estate. But how to use business credit to buy real estate?
We are all about empowering you with the right knowledge about the different ways you can use business credit in real estate investment. Keep reading till the end for the benefits and risks of this process.
Business credit is like a financial track record for your company. It's the history that lenders and partners look at to determine if they want to do business with you or lend you money. Just as individuals have personal credit scores, businesses have their own separate credit ratings.
Let's say you want to buy an investment property using your business rather than your personal finances. So, you would need good business credit in order for banks and lenders to trust you with a loan.
A number of organizations calculate the strength of your business credit, and they will consider factors such as
Maintaining strong business credit has its perks. It offers investors alternative financing options. At the same time, they can protect their personal credit from any setbacks that might come up in the real estate deals.
One crucial thing to remember: Building a solid foundation for your business through proper financial management starts from day one. Keeping an eye on all sides of your accounting will be helpful for continued growth!
With a strong business credit, you can get the money you need for your real estate investments. And the right use of that funding may later result in high returns. If you are thinking how to buy property with business credit, here are a few choices for you:
The Small Business Administration (SBA), a government agency dedicated to helping entrepreneurs, offers various financing programs that can be utilized for real estate investments.
There are two popular types of SBA loans:
SBA loans are highly regarded in the world of small business financing. That’s because the interest rate is lower compared to commercial real estate loans. Also, they often come with higher borrowing limits and longer repayment terms.
However, you should note that these loans are generally only available for owner-occupied transactions. It will not be like rental or investment properties; you have to use the space yourself.
You can also think of taking out a general business line of credit from online lenders or traditional banks. It’s a flexible source of funding for buying a property.
The system is similar to a credit card. You will have access to a certain amount of credit that you can use, pay down the balance, and then repeat the process. However, whether you qualify for a business line of credit or not typically depends on two important things.
1. Your company's annual revenue
2. Your business credit profile
Remember that some lenders may want you to sign a personal guarantee before making their lending decision. In such cases, you need to maintain both good personal and business credit scores.
The interest rates can range anywhere between 8% -35%. But they vary based on your credit and business information, which means your financial standing.
But you also need to understand its limitations. It may not cover the costs associated with a standard mortgage that lasts several decades.
Additionally, the lenders have the authority to review your accounts at any point in time. If they detect changes in risk levels linked with an account holder or their business, the lender can decide whether or not to finance more transactions with those funds.
When it comes to buying commercial properties with business credit, commercial real estate loans are another possible option. They function almost similarly to traditional mortgages. But designed explicitly for investing in properties with five or more units. For instance, retail spaces, office buildings, apartment complexes, etc.
You can get these conventional mortgages from banks or financial institutions. However, these loans also come with some unique terms and conditions-
Believe it or not, some real estate investors choose to buy properties using credit cards. For house flippers and short-term financing needs, in particular, credit cards may seem appealing for a few reasons.
The best thing about getting a business credit card is that if you use it wisely, it might help you build your business credit. And, if you want to get good rates and terms on business loans in the future, you need to have good business credit.
However, just because you can do something doesn't mean it's always the best option. Using a credit card, whether personal or business, involves certain risks when buying investment properties.
Real estate investment using business credits is beneficial in most cases. It comes with opportunities of no personal guarantee, better rates of interest, and diversified financial arrangements. Let’s discuss more.
One major perk is that you don't really have to rely on your personal credit score. It means that if things go south, your personal assets and creditworthiness will remain protected.
Let's say there are financial difficulties with the property, or you're struggling to make payments. With a business credit approach, there's no need for a personal guarantee tied to the loan. Even if the investment doesn't pan out as expected, it won't impact your personal finances in any significant way.
If your personal credit score isn't stellar, opting for business credit can be a smart move. That’s because low personal credit means high interest rates, whereas, with a strong business profile, you can obtain potentially lower rates.
For instance, let's say your personal credit history has some dents in it because of past financial challenges. Using your strong and established business credits can help you secure a real estate loan at more favorable terms. Lower interest rates mean savings in the long run!
Having a solid business credit score opens up doors to a wider range of financing options for real estate investments. In other words, you can look into more complex deals and different kinds of properties.
For example, if you have good business credit, you can use lines of credit or even business credit cards as alternative ways to get the money you need to buy or fix up properties. It's all about expanding your financial toolkit!
Apart from all the positive impacts of business credit in buying property, you also should be aware of the risks you will be taking. It’s an investment, so of course, there will be risks involved.
It’s a brave and bold decision to go with business credit for investing in a real estate property. This approach can help you discover the diverse ways you can use business credit and protect your personal credit at the same time.
SBA loans or credit cards, even business lines of credit, and commercial real estate loans are all preferable options. As much as the process brings advantages, always remember that there are risks, and you need to consider them all. Be careful about using credit cards and potentially higher rates of interest. Check all your options before diving headfirst!
Here in Minnetonka, Excelsior Realty has been a trusted partner for many regarding real estate deals. Do you want to use your business credit and buy a property? We are here to help you with complex details and make sure you are on the right track with the investment. Call us today and see how we can help!