Why You Should Use Your Business Credit Score to Get Better Deals on Rental Properties
What is a Business Credit Score?
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A business credit score can be calculated using a number of factors to determine your company’s financial risk. It ranges from 0 – 100 with 0 representing highly risky, 1- 50 moderately risky, and 51-100 have low to no risk.
We all know that in most cases it requires a large sum of money to buy real estate or launch a business, and you might be one of the many aspiring business owners who are pressed for cash and have little saved up.
By now you might be familiar with the term business credit where banks or credit unions allow the casual investor to buy properties with no money in hand. And it will essentially open a gateway into the world of real estate investing.
However if your business is brand new how can you convince a bank to lend to you if you follow the steps; I’ll tell you exactly how to use business credit cards to buy real estate.
What is Business Credit?
Now the trick is to establish business credit to: Gain credibility with lenders and secure finance as a trustworthy borrower
Lenders will check your personal credit reports and scores when you ask for financing for a variety of investment property loans, with good personal credit you could be able to obtain better conditions and lower interest rates.
Business credit or line of credit are established using your company’s LLC rather than your own personal finances.
By creating your business credit you can apply for loans and credit lines to use for business related expenses like purchasing or renting real estate.
Buying office tools and equipment investing in stocks, paying employees. Each business receives a business credit score which ranges from as low as one up to a hundred. It’s more dangerous for you as an individual when you risk your name and reputation for an investment property.
When you use business credit to buy real estate your personal level of risk is reduced, this is because the lender will only look at the credit of your business instead of your consumer credit reports and scores.
How Should to Create Business Credit for the First Time ?
If you wish to create good business credit apply for business loans and credit cards that don’t demand a high credit score or a significant credit history. Possible options include a secured business loan that would require putting collateral on your business or personal property.
Business credit cards that are secured and require a deposit from you, but can be refunded to you after a certain number of on-time payments online lending platforms whose standards for approval are not high.
Finance organizations that also require collateral and because they have a high likelihood of acceptance online lenders are popular among small business owners. Other options include going to small banks and finance companies which also include non-bank lenders like mortgage lenders, equipment dealers, auto finance firms and insurance companies.
Why should you keep business and personal credit separate ?
Keeping separate business credit protects your assets and money from the blowback of your business. For example your home and other assets won’t be at risk of seizure.
If you declare bankruptcy or fall behind on company loans it’s also useful if your credit is bad because you can construct and build business credit to qualify for loans rather than relying just on your personal credit score.
It is a quicker and more cost effective choice, especially if you have a large amount of personal debt like school loans, medical expenses or a mortgage to settle
What Advantages come with having Business Credit?
In addition to improving your chances of being accepted for business credit lines and loans. Having good business credit can help you cut back on business loan interest rates.
Reduce company insurance costs other goods or services from suppliers without having to pay in advance, earning rewards and cashback on your credit cards. You also don’t have to wait more than 30 to 60 days to get the money you need to make your transaction when you use a credit card.
If you make the effort to establish solid business credit you can use it to obtain finance. If everything goes according to plan you can use those funds to make wise investments and eventually turn a profit in your real estate investing business.
If you keep watching I’m going to specifically outline two possible ways that you could buy real estate using business credit:
#1 Credit Cards
It may seem absurd but the reality is that some real estate investors choose to pay for an entire property with a credit card. But remember that just because you can do something doesn’t mean you necessarily should; using a credit card whether it be personal or business to buy investment properties can be very risky.
#2 Business Line of Credit
Another way you can use your business credit to help your real estate business is to apply for a general business line of credit.
A business line of credit is offered by both conventional banks and online lenders. These accounts resemble business credit cards in certain ways. You may use a business line of credit up to the credit limit settle debts owed and repeat the process as long as the account is active and in good standing.
A business line of credit can be helpful when you need to make purchases that you can pay for with a simple credit card swipe.
What is required for a Business Line of Credit?
Your company’s income and business credit profile are frequently taken into account when determining your eligibility for a business line of credit. However some lenders decide to check your credit instead and they may want you to sign a personal guarantee.
It’s in your best interest as a business owner to maintain excellent consumer and commercial credit reports. Regardless of how a lender likes to review applications doing this can help you position yourself for success.
When it comes to business lines of credit interest rates might vary greatly but just like with personal credit cards most business credit cards offer a zero percent interest period for the first 12 to 16 months depending on the bank.
Do I need to have a Good Credit Score?
Your credit score and the financial data about your company will be taken into account when determining your credit limit for a business line of credit. The better your company’s credit rating and financial performance the better your chances.
However credit lines often have lower lending amounts than mortgages .Therefore you will generally need to stick with properties with lower asking prices if you want to use a business line of credit to pay for an investment acquisition.
Should I pay my mortgage using a Business Credit Card?
Most experts generally advise against treating a business line of credit as a 30-year mortgage, if you choose to utilize one to finance a whole investment property. Instead think of it as a short-term loan when using a standard business line of credit your lender will conduct an annual evaluation of the account.
If at any time the lender considers that your risk has changed it reserves the right to liquidate the account and convert the remaining sum into a term loan.
What is the time frame for Establishing Business Credit?
It takes time to build business credit especially if you’re just getting started the time depends on the type of financing you select and how effectively you manage your finances.
For instance you could seek a credit line after 6 to 12 months of timely vendor payments and relationship building after another 6 to 12 months of doing so. You can use your vendor as a reference to get a bank loan or company credit card.
As a result establishing credit for your company could take up to two years, as timely payments are taken into account when determining your business credit rating it should be noted that paying off business loans too quickly can impede the growth of your business credit.
Therefore if you pay off a 12-month loan in three months you will only have made three on-time payments instead of 12, unless you go on to obtain another loan over time you acquire more points the more on-time payments you make.
As a real estate investor having solid company credit is a crucial advantage, you can use it as leverage to lower your borrowing costs and gain access to new options.
Opening a business credit card and using it responsibly could aid in improving your business credit rating if you want to be eligible for future business loans with favorable rates and terms you must have strong business credit.
You should always research successful investors to learn the best strategies to fund your real estate investment purchases, if you are still unsure about your real estate adventure. None of this concept of business credit will be possible unless you understand the basics on purchasing a home or financing a rental property.
What Factors Influence Your Business Credit Score?
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Business credit score is one of the most important factors in determining your business’s financial health. It is also a key factor in determining whether you will be accepted for a loan or credit card.
There are many factors that influence your business credit score, such as:
- – Your business’s financial history
- – The amount of collateral you have available
- – Your company’s debt-to-equity ratio
What to Do if Your Business Credit Score is too High or Low?
If your credit score is too high or low, it could have serious consequences. For example, if your credit score is too low, you might not be able to purchase inventory or qualify for certain loans. On the other hand, if your credit score is too high, you might be more likely to get scammed by a third party seller who may claim they are selling genuine items but in reality they are not.
How Your Business Credit Score Can Make or Break You
Your credit score is a measure of how well you manage your finances. It is important to have a good credit score because it can make or break your financial future.
Credit scores are a way to determine how trustworthy you are. The higher your credit score, the more likely it is that you’ll be able to borrow money or get a loan.
The good news is that your credit score can improve over time with responsible use of your credit cards and loans. The bad news is that if you have a low credit score, it could mean trouble for your business.
Hi, I’m Susanna, a Bachelor of Engineering and founder of Entrepreneurship. With my engineering background and entrepreneurial passion, I have a unique perspective on building successful businesses. Through my career, I’ve worked with brilliant minds in tech and gained valuable experience in product development and marketing strategy.
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