How to Build Business Credit for Your Real Estate Business!

The U.S. real estate market is still down from the highs of 2007. There is a flood of real estate investors buying up properties all over to grow their real estate business. Especially in Las Vegas, over 54% of the homes under $200K were all cash deals, and by investors (many of those are foreign investors). If you have the cash to invest, that is ideal, most do not. Many will turn to alternative ways to gain the capital to accumulate “cheap” real estate for future growth. If you have a wealthy family member or friend who will loan you the money, that is wonderful, but not realist for most. You are not going to get a bank loan to buy real estate unless you typically have 20% or more down. We are not going to discuss FHA or other types of financing. In this article, we will focus on using business credit, especially vendor credit, to help preserve your cash flow, if you are looking to buy, fix up and rent out houses and increase your cash flow while hopefully benefiting from long term appreciation. I realize there is still a lot of uncertainty with real estate prices in the short term and I am not suggesting this is a good time or bad to invest. I will share with you how you can use business credit, specifically, vendor credit to your advantage if you are looking to either flip houses, buy, fix them up and sell or to buy, fix up and rent them out.

If you are doing any type of repairs, remodeling or hiring someone or a contractor to do that for you cash flow will be critical. You do NOT want to pay cash for all the repairs, materials…when you can use vendor credit.

First, let’s review the basics. After you form your LLC, the business credit bureaus automatically start building a profile on your company, without your permission by the way. The key is to make sure your entity is in compliance as that is happening automatically that means things like making sure all your addresses match in all your filings from the secretary of state to the local business license. Next, you must properly build the business credit profit with the big three, that is Corporate Experian®, Corporate Equifax® and Dun & Bradstreet®. D&B you have to pay a fee to start the business credit building process to get vendors to report. The other two, Corporate Experian® and Corporate Equifax® they can be built as your vendors report. You can check out how you are currently doing to see if any vendors are reporting on your entity for free. Go to www.budurl.com/bizcheck1 and www.budurl.com/bizcheck2 and type in your business name, city, state and zip and find out how many vendors are reporting. If you have two or less that is not good.

Here is the big problem; there are over 50,000 vendors that will grant you credit, but less than 10% report to the business credit bureaus. How does this effect your ability to get vendor credit to help you with your real estate business? The main vendors that come into play when you think of vendors to help you with building supplies is Home Depot® and Lowes®. I am a big Home Depot® fan. Both these vendors will grant you credit for your entity. The credit will be in the name of the entity under the EIN number and the debt will NOT show up in your personal credit bureau. The big question is will you have to provide a personal guarantee to apply for these vendor credit lines to help you with your cash flow as you are improving real estate to either flip or rent out. The answer is yes. Is a personal guarantee all that bad? Your goal is to avoid them. If your business does not go well and you are unable to pay the vendors and you have a personal guarantee that means they can come after your personal assets.

Both Home Depot® and Lowes® require you to be in business for three years before they will offer you a vendor line of credit with NO personal guarantee. What does be in business for three years mean? They look at the incorporation date in the secretary of state’s records to determine your business start date. Does that mean a 3 year old shelf corporation would help? This is a corporation that was filed and sat on the shelf for the express purpose to help you obtain vendor credit after. In this case, if your entity is not already three years old, this may be something to consider. In most, cases, this will only help you with vendor credit, not cash lines of credit.

How much will your vendor line of credit be at Home Depot® or Lowes®? That depends. If your entity is three years or older and you do not provide a personal guarantee, it will match your highest vendor line of credit that is REPORTING. If the highest other vendor trade line of credit that is reporting to the business credit bureaus is only $5,000 that means that is the highest limit you are likely to start out at. If you decide to also provide a personal guarantee, that trade line may be much higher.

What is the advantage of having a vendor line of credit at Home Depot® or Lowes® for your real estate business? When you secure a vendor line of credit for $20K to $30K that frees up a lot of cash flow or things you cannot use vendor credit for, like real estate commissions. The key is that both these vendors will look at the business credit profile on your entity. They are looking for other vendor credit that has been developed and is reporting.

The big misconception I find is that many entrepreneurs think just because they have been in business for 2-3 years and paid all their bills on time that those vendors must be reporting. That is not the case. As we mentioned only less than 10% report. Why is that? It takes time and money for labor to report to the business credit bureaus. Does your business report when a vendor pays you on time? Probably not.

What about real estate financing? Securing cash lines of credit for your business is very difficult. There are hard money lenders out there but most will not lend to anyone with: 1) An active bankruptcy, 2) A bankruptcy discharged in the last 12 months, 3) Current foreclosure(s), 4) Current judgment(s) or 5) Current federal or state tax liens (plus most do not lend on land). Here is such a resource for you that may help www.DoHardMoney.com. Here is another web site with a list of hard money lenders: http://www.reiclub.com/hard-money-lenders.php.
If your business is generating revenue in the U.S. from other business options that opens up more options for developing financing for your entity. Popular financing options include, cash advance financing, merchant account financing, receivable financing.

Let me give you an example. If your business is generating $40K per month in credit card revenue (VISA®, MASTERCARD) and you have consistent with these revenues for 9 months or longer your business would qualify for a merchant account tax advance typically of 50-75% of the total monthly value of your credit card revenue. That would mean in our example you would have access to $20K to $30K in immediate cash within about 5-7 business days. If your business is in this position and you need this support call Fast Business Credit, Inc. at 1-888-313-6333 and we can share with you how we can help you gets access to that financing.

Here is the bottom line, if you are looking to invest in real estate now or in the future, building business credit with the business credit bureaus and key vendors is an important part of the process to help your business better manage your cash flow to help you be in a position to accumulate more properties. Fast Business Credit, Inc.  can help you complete that process fast and without errors (something you want to avoid with the business credit bureaus).