Guides on How to Build Business Credit for Real Estate Investment

     Understanding how to build business credit for real estate is very important for startup companies in the industry. However, investment is an interesting thing everyone jumps at when they want extra cash to yield more money. As beneficial and easy as it may sound, it is something to be undertaken with adequate knowledge and extra caution. Choosing the right industry to invest in and the investment plan to go with is very crucial to the success of any investment. A bad investment is no investment at all.

So, this article explains the meaning of benefits of good business credit, the disadvantages of poor business credit, and how to build business credit for real estate.

What is Real Estate

Let’s start by knowing what real estate is about. Real estate according to Wikipedia is property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; which is immovable. That implies that Real estate is simply land property that can include buildings and other resources around it.

Why Choosing Real Estate Investment?

         There’s an array of options to choose from when considering what to invest in but real estate often attracts a lot of individuals for some peculiar reasons. These reasons include; passive and steady income which comes from rents and other means, appreciation of the property, and lower task rates. Real estate is quite a good option for investing, but it can only be a good option when one is equipped with the right knowledge.

Real Estate Investment and Business Credit

Real estate is the dream of many but one prominent factor that either makes this dream a reality or a mirage is the financial implications required. Real estate is capital intensive which means it requires more money than normal to invest in real estate. This is where personal credit or business credit comes in. Business credit in the simplest of definitions is the sum of your purchasing ability. It is the record accumulated over time that gives you the privilege of purchasing something and paying for it later. Business credit is like evidence of a business’s integrity to pay off their debts in due time and maintain a credible financial record.         

While business credit as a term might only include the financial records of a certified and registered business outlet, Business credit too can be related to individual activities which cut across meaningful business transactions. Although personal transactions can get in the mix, there should be a clear-cut difference between credit for personal expenses and credit for business transactions as an investor. To be an investor in any industry or sector of your choice, good business credit is a must-have. It’s a non-negotiable asset for anyone who wants to be a successful investor.

Advantages of Good Business Credit

As a potential investor in the real estate sector, here are 5 benefits of having a good business credit;

CREDIBILITY

As an investor, good business credit speaks volumes of your accomplishments when it comes to accountability and credibility. Good business credit is the physical evidence of your capacity to manage and make good use of your money and no proof is more convincing than a good business credit score because it’s something that is achieved over time which can buttress the point of your integrity when it comes to money and it also rules out the fact that you’re could be trying to fake a habit to get in the good books.

BETTER DEALS/OPPORTUNITIES

With good business credit, you have superpowers at the bargaining table. This is because you have what the credit facility wants; a person who would pay up and pay fast. A good business credit attracts better deals because no one wants to do business that won’t yield. Also, it’s very much possible to twist and turn the situation to your advantage. For instance, you can negotiate an interest rate that suits you better and it’s also lower than normal.

NO PERSONAL GUARANTOR

Another added advantage of good business credit is that you have to worry less about a personal guarantor to access some loans and any other opportunities. A good business credit validates the fact that you’re are credible and as such, the barrier of having someone else attest to your credibility and integrity is always removed. In the real estate sector where it’s not easy to lease out properties without a guarantor, a good business credit gives you this edge over others. Here, it’s just the logic of your actions speaking louder than your voice or the voice of any other person.

NO PERSONAL GUARANTOR

Another added advantage of good business credit is that you have to worry less about a personal guarantor to access some loans and any other opportunities. A good business credit validates the fact that you’re are credible and as such, the barrier of having someone else attest to your credibility and integrity is always removed. In the real estate sector where it’s not easy to lease out properties without a guarantor, a good business credit gives you this edge over others. Here, it’s just the logic of your actions speaking louder than your voice or the voice of any other person.

LOAN ELIGIBILITY

This is one of the most important benefits of having good business credit especially for capital-intensive projects like real estate. A good business credit secures you a good place when it comes to loans which are very essential in business also this can stand in as good collateral.

EASY APPROVAL

Easy approval is another advantage of good business credit when it comes to real estate investment. Be it the approval of loans or approval of lease of property, it’s a lot easier to get these approvals with good business credit. It’s like you’re vouching for yourself with evidence and this speaks well of you before anyone.

Disadvantages of Poor Business Credit

 Having gone through the benefits of good business credit, let’s look at the risks of having the opposite of it. Here are 4 risks of having poor business credit;

NON-PROFITABLE BUSINESS DEALS

With poor business credit, it’s really difficult to get good business deals. This is because you’re at the mercy of your partners in business and it could be used as an opportunity to exploit you. Poor business credit can also connote financial instability which is unacceptable in real estate investing.

LOAN INACCESSIBILITY

A poor business credit makes it rougher and less easy to access loans. This is because it can be a requirement and if it’s made compulsory, you become automatically disqualified for the loan. Again, no one wants to lend money to someone who has a track record of not paying up and paying late so it reduces the level of trust to pay back and as such makes the financial institution or individual hesitant to do business with you. This is generally bad for any investor. Another downside is that even if you’re able to secure the loans, they will be at higher interest rates which are quite harmful.

LESS APPRECIABLE DEALS

In real estate, though all lands are generally appreciated, some properties possess more potential than others and those better ones are usually scrambled for. With poor business credit, it’s going to be increasingly difficult to be among the lucky few to get the choicest lands because you won’t be considered a good option. In a case where you have enough money to invest, a good credit score might be required and since you do not have that, it’s going to be a problem. On the other hand, if you need to get a loan, it might be equally inaccessible.

UNATTRACTIVE TO INVESTORS

An important downside of having poor business credit is that one might not even get the needed equity capital to invest. This is a typical dead-on-arrival situation and it could be very discouraging. Hence it is essential to take caution steps at the present so that the future would be secured.

How to Build Business Credit for Real Estate

          We have established the importance of good business credit for investing in real estate, here are a few tips on how to build business credit real estate investment as an investor in the real estate sector;

REGISTRATION OF BUSINESS

The first step on how to build business credit for real estate investment is to make your business official by registering it with the appropriate authority. The three major types of business structure to choose from includes sole proprietorship, partnership, and company.  Registering your business will help you to separate your personal information from business information. For real estate, meeting up with experts, drawing up an investment plan, getting registered and things like that makes things legal and official. With this in place, you can access certain services that can build your business credit.

BUSINESS PHONE NUMBER

Having a separate business phone number for your business will help you to build your business credit. Having your business phone number listed on your marketing materials will enhance your business image and improve the credibility of your business to investors and lenders.

OPEN BUSINESS ACCOUNT

The need for a separate business account cannot be overemphasized. Having a separate business account gives you a clear picture of your expenditure and makes it easy to calculate your business credit score and keep track of your financial activities. For accountability purposes, a separate account is a must-have.

PAYMENT OF BILLS ON TIME

This does not end at just paying your bills, it ends at paying them as and when due. This would help build good credit that is essential for investing.

SEPARATION OF PERSONAL AND BUSINESS FINANCES

Separation of personal finances from business ones enhances the building of business credit for real estate.  With the help of having a business bank account for your business, you can easily separate your finances from business ones. All the receipts from the customers and payments should be made through the business account.

MONITOR YOUR EXPENSES

No good business thrives on frivolous spending. As small as it may seem, keeping a track of your expenses is important for good business credit. You can make use of online software services such as Freshbooks, Sage, Quickbooks online, Wave, and others to automatically track your business expenses.

CONCLUSION

However, the building of business credit for real estate is very important to both potential and startup real estate businesses. Building good business credit for your business has its benefits. Also, failure to build good business credit for your business has its consequences. Therefore, the earlier you start building business credit for your business, the better it is for you. For any business or management-related assistance, CONTACT US

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