I have been looking into a business Line of Credit and have a few questions:
- I notice that some people can obtain a huge Line of Credit based on a very small piece of collateral (let's say a $500k LOC on a $100k collateral). Is this feasible because they are using a business Line of credit? I know HELOC's are only based on the equity position.
- I assume you can use the funds to do as you wish, i.g., purchase a flip and rehab all with the same LOC.
- what are the typical requirements to obtain a business LOC? I notice some lenders require 6 mo's of business activity and at least 50K of annual revenue. How much does your personal credit factor into this loan type? Any other requirements that I need to know?
Any other info would be highly appreciated.
@Charles Whitaker generally lenders want the line of credit to be fully secured. That is certainly true with real estate related lines of credit.
There may be other factors that are considered and every lender is going to be different. Things like total net worth, history with the lender, etc can be a factor.
I doubt Bill gates would need to pledge full collateral for a small credit line. I bet I would have to pledge at lest 100% collateral or even more to get a credit line.
I figured as much but i had noticed a few deeds where a sizable credit line was obtained while the house (collateral) was ~1\5th the value. Obviously other factors went into that determination.
Thanks for the info
@Charles Whitaker you are correct that there are products that will lend over the value of certian assets and your math is correct that it can sometimes be 5x's the asset value. The most common type I see is where the lender will lend based on the amount of cash/retirement assets/stocks/etc. Generally a lender won't lend OVER the value of an individual property but your personal assets, yes.
Now, I'm going to talk in general terms here because since this is a "portfolio" product, that means each lender will lend it differently. And just in case, these loans are loans that come from the bank's own "portfolio" of money. Sometimes referred to as "commercial" loans. These loans are a lot more flexible than "conventional" loans. Bank's money = Bank's rules. If they like you, then maybe they will lend to you.
For example, Chase bank does have portfolio lending.....but you need $250,000 in cash with Chase to even see their options. Hey, it's their money. They can lend it how they see fit.
But in general, the lenders will want to see some type of history of doing investing, are likely to have some type of minimum of assets (usually $50k), and still charge a fee each time you draw from it. I have seen some that will lower the rate the more you use it. Again, these types of products that run the GAMBIT on what's possible. I do know of one lender that will lend based on your assets but to find them I had to call A LOT. Certainly willing to share but if you do want to try on your own here's how I would suggest about going doing it:
- Post in the Bigger Pockets STATE forum that you are looking in. There are usually some good, local investors that monitor those forums. Maybe they already have a suggestion or recommendation for you? Certainly try there.
- Visit your local REI groups. There are many groups that meet across the country. Some post here on Bigger Pockets. Many post on meetup.com. Networking is always a great practice and you never know who you might meet there and what good information they have to share. Would certainly recommend visiting if one is close to you.
- Calling - and then there's this option. Which is what I had to do. I had to call about 200 lenders (no exaggeration) to learn of 4 lenders who did this and I have some tips. First, when calling banks target the smallest most community based banks you can first. If you have never heard of them, and they have one location - that's a good candidate. No big, national, publicly traded banks will do this loan type. Now, most of these smaller banks may only have 12 employees or so. So don't get frustrated if they don't return your call or aren't in the office. Just call back and be friendly. Maybe play dumb a little "I don't know if I'm in the right place..." "I'm sorry to disturb you, you may not be the right person for this....", etc. Maybe someone can get you to the right person. Again, be prepared to call A LOT
Anyway, I hope this helps in some way. Thanks!
Excellent information. Thank you Andrew