Business Line of Credit?

Every month I get a bazillion (yes, that is a real number) of emails from real estate investors asking how they can obtain a business line of credit.  So, today here’s my 6 easy steps to a million dollar business line of credit.

A business line of credit is tricky if you’re a real estate investor. The first problem is that you can’t actually say that you’re a real estate investor when you apply. Banks hate real estate investors. They think we’re all evil flippers. Darn you, evil flippers for ruining it for us.

I remember last year when I still had my mortgage company an account rep from a local bank came in with all these flyers about getting a business line of credit.  I was really excited thinking this may be a great solution for my real estate investor clients. But then I read the fine print.

*No applications will be accepted from strip clubs or real estate investors.

Wow. Now we’re lumped in there with the poor guy that wants to buy a new stripper pole. And if you need a new stripper pole, that’s a purchase you shouldn’t delay.

The second problem is that you really must have a seasoned company that has documented cash flow. It’s not as easy as the scammers say it is. You can’t just form an LLC online and then start applying (and getting) business lines of credit all over the place.  Like anything, it’s a process.

And even though you won’t walk into a bank and walk out with a million dollar line to buy a big package of properties, there is a way you can build up to that. Here’s the process in a nutshell:

Form a Corporation.
I have LLC’s some guys favor C corps and still others like S corps. Check with your accountant to see which is best for you. There are some companies out there that will sell you seasoned “shelf-corporations” for several thousand dollars. That’s fine if you want to go that way but it won’t get you big lines off the bat because they aren’t cash-flowing corporations. I personally think they’re a rip.

Get a Tax ID
Also known as an Employer Identification Number of EIN you can get this online for free from the IRS website.

Get a DUNS number from Dun & Bradstreet
D&B is to business credit like FICO is to personal credit. They rate your company and your vendors report to them. Get signed up at http://www.dnb.com

Your goal is to build your “Paydex” number. Your goal should be a Paydex of 80.

Get a Few 30-Day Business Credit Accounts
The easiest way to start building your business credit is with 30-day accounts. Places like FedEx, Office Depot, Home Depot and Kinko’s will give you a business credit account. It’s a like a charge account. Charge something each month and pay it off each month.

Get a Business Credit Card
Once you have a few months of this under your belt, apply for a business credit card such as Discover or American Express.

Get a Small Line of Credit
Then after a year or so when your Paydex is close to 80, and your business has some positive, cash-flowing financials that you can show the banker, you have a good shot at an unsecured line of credit of $25,000 – $50,000.

Get a Big Line of Credit
Behave responsibly with that and the bank will continue to increase your line.

And there you have it – my 6 easy steps to a million dollar business line of credit. Is this as easy as it sounds? Kinda. Is it guaranteed? No. Nothing in life really is. But if you show that you have cash flow in your corporation, you’re head and shoulders above the rest. Cash flow is key.

The next questions is always “is there a course that will walk me through all this?” The answer is yes. There are a bazillion. And I’ve got most of them. In my opinion, the best one is Business Credit Infusion by Dustin Matthews and Mark Bravo. I like this one because they break it down into really, simple actionable steps and they don’t blow smoke up your… well, let’s just say they don’t make any false promises.  And they have an online component with videos that walk you through each step and a database of business line of credit providers that’s updated regularly.

So, get out there and start building your business credit. And for God’s sake if there’s a strip club owner that needs a new pole, help him out. It’s the least you can do.