How to Buy Property with Business Credit: A Comprehensive Guide

Business credit is a financial tool that allows a company to access funds, separate from personal finances, based on its creditworthiness and history. For entrepreneurs, small business owners, and visionaries of tech startups, the power of business credit is a game-changer. So, how to buy property with business credit? There are three ways to do so: SBA loans, lines of credit for businesses, and credit cards.

Imagine this: you own a thriving tech startup but need a more spacious office. You spot the perfect building, but it's a hefty upfront investment. Here is where business credit becomes your key to success. It's more than just financial leverage. It's a strategic tool to transform dreams into assets.

Today, we explore the world of business credit, offering essential insights into leveraging it for real estate investments. Discover how business credit can turn your property aspirations into reality, empowering your financial journey.

What is Business Credit?

Business credit is the financial track record of a company or organization. Lenders and partners use business credit to assess whether they want to extend credit, engage in business transactions, or collaborate with that entity. It is measured on a scale from 0 to 100, with credit scores above 80 being considered good business credit. As with personal credit ratings, business credits are also evaluated based on factors such as repayment history and credit risk.

Why does business credit matter? Well, not only does it provide real estate investors with access to alternative financing options, but it also safeguards their personal finances from any potential setbacks caused by their businesses. As an investor creates a corporation or apply for loans under his or her company name, instead of using personal funds for investments alone, they build business credits naturally. Hence, constant monitoring becomes imperative right from the moment you embark upon your entrepreneurial journey.

Several agencies calculate and score one's business credits. Examples include Bradstreet, Equifax, Experian, etc. Each has slightly different evaluation standards but employs similar scales while doing so. Requesting regular reports will enable you to monitor your standing consistently, albeit at some cost. However, proactive identification and rectification of discrepancies far outweigh its price tag. Business owners should ideally check this report two times annually.

How to Build Business Credit?

Creating business credit is crucial for real estate investment. In a digital age where online presence matters to lenders, your journey commences with business entity formation. However, it's essential not to lose focus on your core investments while establishing an online presence. Moreover, other steps can boost your business credibility, increasing your appeal to potential lenders. Initially, you might opt for small business cards or credit lines, but for many, the journey progresses to securing commercial real estate loans. The key is to navigate this path wisely, ensuring that your credit becomes an asset rather than a liability. So, let's dive into the steps that will guide you toward building your business credit and, ultimately, achieving success in real estate investment.

1. Establish Your Business Identity: Start by crafting a distinct identity for your venture. Whether it's through incorporation or forming an LLC, choose the right legal structure that aligns with your business goals. Your business name, state registration, and essential paperwork are the building blocks.

2. Obtain Your Business's ID Number: Just as individuals have social security numbers, businesses need their unique identifier - the Federal Tax Identification Number, or EIN. It's not just a number; it's the foundation for proper taxation and financial operations.

3. Choose a Financial Home: Your choice of a business-friendly bank is pivotal. Open a dedicated checking account in your business's name and set up a robust system for managing and tracking your financial transactions. This account is your credit-building hub.

4. Enhance Your Professional Image: A dedicated business phone number elevates your professional image. Whether it's a landline or a cell phone, having a business number listed in your company's name enhances not just your communication but also your credibility with clients.

5. Set the Credit Foundation: Delve into the world of business credit by checking whether your company is already on the radar of major business credit bureaus. If not, take a proactive step to lay the foundation for your business credit profile. Ensure you have your EIN and business bank account details in place before moving forward.

6. Credit Cards for Business: Your choice of a business credit card can be a decisive tool in building credit. Seek out cards that report to business credit bureaus, and explore your options diligently. Some of these cards offer enticing rewards and sign-up bonuses.

7. Cultivate Vendor Relationships: Suppliers and business connections aren't just about transactions; they're your allies in credit-building. Establish positive relationships with at least five suppliers. Your initial vendor, like your phone company, can be the cornerstone of your journey.

8. Punctuality is Key: A strong business credit depends on punctuality. Develop a robust system to track your financial commitments and keep a close eye on your monthly business budget. This consistent practice is the bedrock of your credit strength.

9. Separate business from personal expenses: It's essential for accurate tax filing to keep things separate between business and personal expenses.

How to Buy Property with Business Credit?

Building business credit opens doors to real estate investment opportunities. Your solid business credit can be a valuable asset, providing the means to make strategic real estate investments that yield profits. Here, we explore three ways you can utilize your business credit to purchase real estate.

SBA Loans

SBA loans are an amazing option for financing commercial real estate. The Small Business Administration offers loan programs like the SBA 504 Loan and SBA 7a Loan, which can be used to fund commercial real estate purchases. These loans come with competitive interest rates, typically ranging from just over 4.5% to 9.5%. However, securing an SBA loan can be challenging as lenders evaluate both your business credit and personal credit.

It's important to note that if you need quick financing, SBA loans may not be your best choice, as the application process typically takes 60-90 days.

Business Lines of Credit

A general business line of credit can also be used to leverage your business credit for real estate investments. They can be obtained from traditional banks and online lenders. Similar to business credit cards, these lines of credit allow you to

Draw funds up to the limit
Pay it down
Re-use them when your account is in good standing

Several factors determine whether your company qualifies for a business line of credit, including its income and credit rating. In addition to your business and personal credit status, lenders may also request a personal guarantee. Maintaining good credit for both is crucial, as it can influence your eligibility for business loans.

Your credit limit is specified by factors such as your credit history and financial information. Interest rates for business lines of credit can deviate widely, typically ranging from 8% to 35%.

Credit Cards

Despite its surprising nature, some real estate investors use credit cards to finance their purchases. It's possible to earn points, miles, or cashback on qualifying purchases by using a rewards credit card, whether for business or personal purposes. Credit cards offer instant access to funds without the delay that comes with other types of financing. However, real estate investments using credit cards carry risks, whether they are used for business or personal purposes.

Real estate investors looking for short-term financing, such as those involved in house flipping, might find credit cards appealing. Keep in mind that credit card interest fees can be expensive, and using them for cash advances won't earn you rewards. Using credit cards for expenses like renovation materials or contractor fees (if accepted) may allow you to earn rewards.

Additionally, managing a business credit card effectively can help you build your business credit profile, which is crucial to securing favorable loan terms down the road.

Benefits of Building Business Credit for Real Estate Investors

Building business credit offers substantial benefits for real estate investors. Developing a robust business credit profile can profoundly impact your long-term success. Business credit provides access to loans and credit options beyond what individuals can obtain. It also shields you from personal liability for loans and keeps them off your personal credit report.

Financing

While some investors have faced credit access issues recently, others have benefited from abundant business and investment property financing. New regulations and uncertainties in residential lending contributed to this shift. Many lenders now focus on financing businesses and commercial purposes.

A business line of credit provides flexibility in acquiring real estate, with credit limits and interest rates tailored to your business's financial health. Real estate investors have reaped the benefits through various funding options, such as hard money, private money, commercial mortgage loans, and business lines of credit. These options facilitate property acquisition, renovation, and resale.

Commercial financing eliminates the need for personal guarantees, relying on your business's creditworthiness and income potential. This approach provides access to substantial investment capital, mitigates risk, delivers high returns on investment, and accelerates wealth accumulation.

Legitimacy

Building business credit not only has financial advantages but also elevates your company's reputation. A solid credit history signifies reliability and financial strength to competitors, lenders, clients, and fellow investors. A strong credit profile can make conducting business smoother and add value to your organization.

Scalability

One of the most exciting aspects of building business credit is the potential to grow your real estate business. With better access to financing, you can undertake more ambitious deals, expand your portfolio, or transition from residential to commercial real estate. As your business credit profile grows, you may attract more investors and partners, offering opportunities to take on larger projects.

Risk

When you separate personal and business finances, you reduce risks significantly. It insulates your personal income and assets from business-related financial challenges, ensuring stability in the face of personal crises. Legal entities like LLCs offer protection and additional tax advantages, such as lower fees and flexible profit distribution.

Final Thoughts

In conclusion, there are many facets of acquiring real estate through business credit. Building business credit not only reduces personal risk but also enhances your credibility and financing options. It's the key to scaling your real estate investments.

At Excelsior Realty, we've simplified the process. Acquiring property with business credit is easy and convenient. Our years of experience and in-depth knowledge of the local market make it a seamless journey. Join us to unlock the full potential of your real estate investments.

What You Need to Know About How to Buy Property With Business Credit

What is Business Credit?

How to Build Business Credit?