How to Build Business Credit for Real Estate

Buying and selling real estate for commercial purposes can be an expensive endeavor. Many real estate investors typically have to start out using their own funds or personal credit to cover the cost of their new properties, even when they’re for generating income. This strategy works well for those who have the personal capital to make big purchases, but for those who don’t, it can be a roadblock for them. If you have the knowledge and skills for real estate investing, but not the cash flow, it can prevent you from becoming an investor. In these cases, business credit can be a solution to the problem. 

What Is Business Credit, and When Should You Consider It?

Business credit is like personal credit, but based on the financial wellbeing of your company. It’s used to determine whether financial institutions should lend money to or do work with your business. Establishing business credit can take some time. Your score reflects your payment history, risk, and how likely you are to remain in business. Dun & Bradstreet offers a business credit that’s ranked from 0 to 100, and 80 or higher is excellent. 

Even if you don’t intend to use it, business credit is essential to maintain. It can provide opportunities in the future. It can allow you to receive financing and helps move away from business owners utilizing their own credit and personal funds for big purchases, like commercial real estate. 

How to Build Business Credit for Real Estate 

Business credit is an excellent option for real estate investors and can become a source of financing to continue purchasing real estate. 

There are a few different ways to do this. A business line of credit can be a source to purchase a property, depending if your business qualifies for a line large enough to support a real estate purchase. Interest rates are also based on your business’s income and risk and will likely be higher than using a mortgage loan to purchase. Business owners can also use business credit cards to purchase properties, also depending on if they qualify for a credit line that can support a real estate purchase. 

A credit card will likely have higher interest rates, but plenty of credit options have great rewards that might be worth some thought. The business credit card can also be used for other expenses. 

Finally, some real estate investors may qualify for a loan through the SBA or Small Business Administration. 504 loans offered by the SBA, allow the purchase of existing buildings if your business meets certain criteria. If an SBA loan is something you want to consider, contact a certified SBA lender to see if you qualify for that option.

Here are the steps to building your business credit: 

• Ensure your business is incorporated. When you form an LLC or incorporate, your business becomes its own entity. Which one you choose will depend on your future business goals and plans, so do some research and figure out which is best for you. When you incorporate, you’ll need to do some paperwork, choose a business name, and register with your particular state. 
• Set up a federal tax identification number. There’s an online application process to set up an EIN, and this doubles as your identification number for your business. The tax number is a necessary component of starting your business for tax purposes. 
• Set up a business bank account. You don’t have to choose to work with your personal bank. Choosing a bank to handle your business needs should have excellent account options and customer service. Start to track your expenses and income through a spreadsheet or app. If you’re busy off the get-go, you can choose to hire an accountant to care for all your financial needs. 
• Set up a business phone number. Mitchell G David, one of most experienced realtors in Ocean City, always suggests to have a separate phone specifically for clients. Doing this will help manage a work-life balance because you can leave the phone alone during off-hours. You can use this number for all your marketing materials, and it helps build credibility in your industry. 
• Start your business credit journey. Once you’re all set up, you can search the business credit bureaus to see if your business is listed. If it’s not, you can manually start a business credit file with your bank account information and your EIN. 
• Apply for a business credit card. After ensuring your business is recognized by the bureaus, you can apply for a business credit card to start building your credit. You can shop around and get a card with fantastic perks that will benefit you. You can also opt for a low-interest card if you’re looking to use it to purchase a commercial property. 
• Pay your bills on time. Being on time with your payments is a huge part of maintaining a credit rating for both business or personal finances. Many companies allow you to set up automatic payments through your bank, or you can set calendar reminders to pay each bill before it’s due. Ensuring you’re paying everything on time will help protect your credit and reflect your payment consistency. 
• Keep track of your expenses. It can become a mess when you don’t track your business expenses or you mix them with personal ones. It can result in huge issues come tax time, and it’s a headache that’s easily avoidable. Once you’ve got separate accounts, ensure you’re keeping everything separate. 

Building your business credit in order to purchase real estate is a significant benefit to many business owners. Finding a professional realtor who can help you once you have the business credit to purchase a property is critical.