Business Line of Credit-Second lien or not?

[Robin Evans]

Dear BP friends, we would like to seek your advice on business LOC. We found a local credit union that says our numbers on the application look good but most of our equity is in rentals (we have 4 rentals under the business name). They can use our equity in the rentals to approve LOC if we agree for them to put second lien on the properties. They use 80% of the appraisal value of properties minus loan balance to decide on the limit for the line. $ 50 for each appraisal and 1% origination fee based on the limit. No annual fee or specific term. Variable rate based on prime rate+1%. If we draw it, we can just pay interest only for the minimum payment. Sounds good to us. LOC will be good for our short-term rehab to get things going. The question is second lien. We are brand new to this and have never had second lien on our properties. Is that something quite common? What is you guys' input on this? Thanks so much!

[Dave McIntyre]

Hi Robin,

In case it's of value, you might also consider unsecured funding in the form of a business LOC or term loan. 

Be happy to connect.

Best,

Dave

[Chris Seveney]

@Robin Evans

It’s a business loan that secured to all your assets. It’s common but just understand if things go sideways what could happen - which is outlined in the terms

[Robin Evans]

Quote from @Dave McIntyre:

I assume unsecured loan have a much higher interest rate? 

[Robin Evans]

Quote from @Chris Seveney:

Thank you for the input! We will keep that in mind.