Below is the final post in a three part series by Ryan Page who maintains the not so ironic nom de plume of The XBanker. Ryan and the crew over at XBanker, which also include renowned personal credit guru Gerri Detweiler and incorporation specialist Garret Sutton, focus on small business advice and financing strategies.
Bookmark this site in your RSS reader as it’s chock full of great business advice that any real estate or mortgage professional should consider. Just because you’re a good agent doesn’t mean you’re a good business person, in todays volatile market of attrition every advantage needs to be explored. What’s most refreshing is that the content is not your typical regurgitated vanilla flavor, it’s spicy real world advice given by people who are active in the trenches.
Enough with the intro, the floor is now Ryans…
This is the final post in a three post series on financing your real estate or mortgage business. Before I dive into the meat of this post, I’d like to briefly recap what I’ve discussed thus far.
In my first post, I discussed how important it is to form an S-corporation or LLC. I recommended S-Corporations for most circumstances, with LLCs being a preferred entity for working with partners. In my second post, I demonstrated how forming a corporation or LLC can limit your tax liability. In my last post, I turned my focus to accessing capital for your business.
The objective is to create separation between yourself and your business – for asset protection and to preserve your personal credit. Properly obtaining business credit and bank financing can help you access thousands of dollars for your business, without impacting your personal credit scores or ratios.
As the final post in this series, I want to share six concrete next steps for getting your business in position for financing.
- Choose the right name. Believe it or not, what you name your business and how you define your business activities can have a huge impact on your ability to obtain financing. So whatever you do, please don’t: use the words “mortgage,” “real estate” or “investments” in your business name. All three of these words are akin to saying “bomb” on an airplane. I recommend setting up a management or marketing company.
- Set-up your business entity – now. The age of your business will either open or close doors for financing. The best time to incorporate was yesterday. Some of the most attractive lending products will require you to be in business for 2 or more years. If you’ve been operating as a contractor or sole proprietor you can sometimes sidestep this, but age is always an advantage.
- Legitimize yourself. It’s important that your business look legit. That means you should have a website and email address at that domain; and that your kids don’t answer your business phone. Look and act professional/corporate and you’ll have a lot better chance of obtaining financing.
- Get a couple business credit cards. If your personal credit is decent you should be able to easily secure a couple credit cards, even as a start-up. Your limits may start out small, but they can routinely be increased and most importantly – the balances won’t mess up your revolving debt ratios on your personal credit.
- Unsecured lines of credit. This is the holy grail of small business financing – cash that can be readily accessed! You’ll need stellar credit, good ratios and typically 2 years in business. Most banks offer these products, but you’ll rarely get all that you want from one line. I recommend establishing lines with multiple banks. You’ll be able to increase each line and you’ll have access to enough capital to make all your dreams come true (well, at least your business ones!).
- Build business or trade credit. Trade credit is the financing that business extend to other businesses. Like building your personal credit, you’ll need to proactively build your business credit by obtaining, using and paying off lines that will report to the business credit bureaus. If you properly do this, you’ll find that you can access thousands of dollars of credit, without the dreaded personal guarantee, with just about every business or supplier in the country. I’ve had a number of clients build their business credit so they could lease their business vehicle on the corporation without showing up on their personal credit. Others have leveraged credit accounts with the likes of Home Depot to finance the supplies needed to flip properties. There are endless possibilities – it just takes preparation and strategy to make it happen.
I hope this series has been useful. My partners and I will continually dive into these topics on our blog come pay us a visit sometime.
Thanks Ryan, you’re welcome back anytime…
Also See:
How Real Estate Professionals Should Properly Finance Their Business
How To Use The Proper Corporation To Minimize Your Tax Liability As a Real Estate Professional
How To Maximize Your Income and Minimize Your Liability as a Real Estate Professional
