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How to Get a Bank Line of Credit to Invest in Notes

by Jimmy Moncrief on December 7, 2013 · 4 comments

Getting Lines Of Credit

I am a bank credit officer and the biggest request I get from investors isn’t to buy notes…it’s getting lines of credit for their note and/or real estate business.

If you are a BiggerPockets reader you know there are tons of great note deals out there.  However, your absolute profit is limited to your personal and/or company’s capital.

Getting a line of credit for your note and real estate business can offer you a competitive advantage for these reasons:

  1. Positive carry – interest cost on the line of credit is lower than the interest earned on your notes
  2. Timing – buy notes faster because you have a line of credit already approved
  3. Bulk purchase – you can negotiate a steep-discount if you buy a portfolio of notes

Learn more about investing in Notes on BiggerPockets here

Two Tips for Getting a Line of Credit Approved

Now that we’ve gone over the competitive advantage you can have by having a line of credit, how do you get a line of credit for your note business?

Let me start by saying that this is not easy.  You probably know from dealing with banks that getting a simple loan isn’t easy.  Getting a line of credit for your note business is even harder.  However, I believe it’s worth it due to the competitive advantages it offers your businesses as outlined above.

There are two primary things you need to outline to your banker to negotiate a line of credit:

  1. Cash-flow – hopefully you can cash-flow the line of credit in multiple ways (existing notes, salary, rent, etc), and not completely dependent on the notes you are buying to pay the monthly payments.
  2. Collateral – carefully outline all of the lendable equity that is in your business and/or personal financial statement.  Equity in investment accounts, existing cash, real estate, and equipment is preferred.

Now that you have outlined the above, explain your history in the note business and respective success stories.  You will be utilizing the line of credit to buy notes and REO, therefore the bank will then have three sources of repayment: Existing cash-flow, existing collateral, cash-flow on the purchased notes and possibly even collateral from the purchased notes.

Hopefully these steps will increase your profitability in the note business.

Photo Credit: nikcname

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{ 4 comments… read them below or add one }

Roy Schauer December 7, 2013 at 10:56 am

Thank you for the information Jimmy. I’m still learning about notes, but that is my long term goal. Right now I’m learning about them and trying to get things structured so when I’m ready to make the move, I’m not scrambling to put everything into place. Dave Van Horn has had some good information on notes as well. Appreciate your insight!


Tim December 7, 2013 at 8:36 pm

I don’t know any commercial lender (non-HML) that will underwrite a loan for notes or any real estate for that matter without a personal guarantee, perfect credit, tax returns, etc. Do you?


David December 8, 2013 at 9:12 pm

Jimmy, has your bank extended these types of loans? What bank has done so?


Peter December 15, 2013 at 6:53 pm

Great strategy – thanks for sharing. Definitely particularly effective in the current environment given how low interest rates are these days.


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