Navigating the Maze of Approval Readiness
In real estate investing, the thrill of sealing a deal is exciting. So is hitting a milestone. Unfortunately, that excitement can be offset by the headache of finding the right funding.
Far too often, serious real estate investors overlook some of the most inexpensive money out there—business credit. Business credit is the backbone of every successful enterprise, yet it remains one of the most misunderstood and elusive components of business ownership.
You may be thinking, “But I thought real estate investors couldn’t qualify for business credit.” Not true, but you must be “approval ready.”
One critical question you must ask is, “What is the business credit going to be used for?” Just because someone teaches or offers “business credit” doesn’t mean it’s the right business credit for you. There is no “one size fits all” in the business credit world. And, going after the wrong business credit can actually hurt your approval readiness in the future.
Why Serious Real Estate Investors Miss Out on Bank Money
You’re not alone as a real estate investor if you’ve felt like the doors of banks slam shut when you knock. Historically, real estate investors have been denied unsecured bank money. But why?
Most banks are notoriously risk averse. Their cautious stance stems from their responsibility to their stakeholders. When entrepreneurs lack a robust credit history, substantial collateral, or a proven track record, banks often see them as high-risk. And if you add the words “real estate investing,” most lenders turn and run.
Further, most real estate investors are unaware of how to correctly present themselves as “approval ready.” It doesn’t just mean having all the paperwork sorted. It’s about showcasing a Qualified Fundable Entity in a way that makes banks see you as a promising and, more importantly, “safe” investment.
The World of Business Credit: The Good, the Bad, and the Profitable
Let’s look at some of the more popular business credit instruments and the basic pros and cons for each. This isn’t a comprehensive list or a complete analysis of all the pros and cons. You should always consult your professional advisors before taking on any financial risk.
1. Term Loans
Pros: Term loans offer fixed interest rates and regular repayment schedules, making budgeting and planning easier. They’re also fantastic for larger, long-term investments.
Cons: They often require a strong credit history and substantial collateral. Plus, the longer the term, the more interest you’ll end up paying.
2. Business Lines of Credit
Pros: These are flexible, allowing you to borrow as needed. Think of it as a credit card, but for your business. You only pay interest on the amount you draw.
Cons: They can have higher interest rates than term loans. Also, there’s always the temptation to over-borrow, which can lead to debt pitfalls.
3. Business Credit Cards
Pros: A business credit card, at its core, is just like a personal credit card, but it’s specially designed for business use. They come in handy for managing business expenses, keeping personal and business finances separate, and even earning rewards on business-related purchases. True business credit cards do not report monthly on your personal credit.
Cons: With credit cards, it’s easy to spend beyond your business’s ability to pay the monthly payment amount, and they can have high-interest rates (especially for first-time business credit card holders).
4. Invoice Financing
Pros: Get money upfront for unpaid invoices. It’s a great way to keep cash flow steady.
Cons: It’s more expensive than traditional lending. You’re essentially selling your invoices for immediate cash, but at a discounted rate.
5. Equipment Financing
Pros: Equipment financing is perfect for businesses needing specific machinery or technology. You can finance the equipment and pay in installments.
Cons: The equipment serves as collateral. If you default, the lender can seize it.
6. Merchant Cash Advances
Pros: This option provides quick access to cash, especially for businesses with strong daily sales.
Cons: Merchant cash advances have very high interest rates. It’s a percentage of your daily sales, which can eat into your profits.
Making Yourself “Approval-Ready”
Being approval-ready isn’t about wearing a fancy suit to the bank. Being approval-ready means understanding what lenders want to see:
- A Solid Borrower Profile. A solid borrower profile tells lenders you’re reliable. If it’s not stellar, start working on improving it.
- A Qualified Fundable Entity. It tells lenders you aren’t high-risk. If your business name indicates any type of risk, or your SIC or NAICS codes are from a blacklisted industry, take the steps to correct that.
- Stellar Banking Behaviors. It tells lenders you know the exact specifications you must meet to have a profitable relationship with them.
The Future of Business Financing
Imagine a world where entrepreneurs, like you, walk confidently into any financial institution, ready and equipped. A world where approval-ready isn’t just a buzzword, but a badge of honor worn by business owners who have mastered the art of securing the funds they deserve.
At Get Fundable! that is the world we are helping to build
Business credit is more than just numbers on a sheet. It’s the lifeblood that pumps through the veins of every thriving enterprise. By understanding its nuances, pros, and cons, you’re not just seeking funds—you’re building a legacy.
Here’s to a future where every entrepreneur knows their worth and gets the credit they need to take their business to the next level!
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