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Business Lines of Credit
A business line of credit gives you an incredibly flexible financing option. Think of it like a building-sized credit card, where you’re borrowing against the value of the property. You can draw on your line of credit as needed and repay it at your own pace, paying interest only on your outstanding balance in a given month. Use the money you draw for whatever you want—to make a down payment or purchase a new rental property, to renovate, or to hire a property manager.
Of course, if you fail to repay, the lender can take the property and any collateral. But not all business lines of credit require collateral.
Unsecured Business Credit
Ready for a “secret” that most real estate investors don’t know?
As a real estate investor, you can qualify for unsecured business lines of credit and business credit cards. You don’t need to put up any collateral, which means saving thousands of dollars on title company fees, settlement fees, and lender fees. Plus, the lender can’t foreclose on your properties if you default.
Business credit cards prove more useful for real estate investing than you realize. You can dodge cash advance fees and limits by using a service like Plastiq. You can pay for materials directly with your card. All the while, you rack up credit card reward points.
I’ve gone so far as to buy and renovate a property almost entirely using credit card funds.
Check out business credit concierge Fund&Grow, which lets real estate investors open business credit lines and cards between $50,000–$250,000. They even scrub your credit report in between each round of fundraising.
Small Business Administration (SBA) Loans
SBA loans are government-backed loans designed to assist small businesses. They’re not really intended for real estate investors and restrict using them to purchase rental properties or other properties used as investments. But your business may be able to use one nonetheless.
You can use an SBA 7(a) loan, for instance, for commercial real estate purchases, renovations, or refinancing existing business debt. Or you can use an SBA 504 loan to get long-term, fixed-rate financing up to $5.5 million to buy assets that promote business growth and job creation, including building purchases, new construction, and land improvement projects.
SBA loans often come with lower down payment requirements and favorable interest rates, but are notorious for having long approval times and an application process mired in red tape. Expect to spend a couple months jumping through hoops. But these loans can reward you with some of the best terms around—if you’re patient.
Final Thoughts
Business loans offer plenty of options for rental property investments and allowing real estate investors to grow their portfolios. Understanding the types of business loans helps you select an option that aligns with your current situation and your financial goals.
Shop around to compare rates and terms, especially in real estate financing where the numbers can become astronomical. And don’t forget to shop around! There’s no harm in asking what your preferred lending institutions can offer to you in your situation, and let them compete for your business.♦
Have you ever used a business loan to buy rental properties? What types of business loans have you used for real estate investing?
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