Building line of credit for LLC?

Question

I'm working on my plan to start flipping houses and I figure if I can work my way up to a $300k line of credit for my LLC I can fund 2 rehabs at once and cover carrying costs without having to use my own cash. I have over $200k equity in my primary and I will be taking out a HELOC to fund my first deal but looking ahead - I'm not sure how long we're going to hold on to this house so I'd like to focus on building a business line of credit that I can always depend on.

How hard is it to get approved for a $300k line of credit especially considering my LLC is brand new? My wife and I currently have about $120k in W2 income and I plan on keeping my W2 job until I can no longer justify it. Our combined DTI is around 30% right now. My wife will be keeping her job indefintely and I will be the one "running the business." Can I use my wifes income to help qualify for loans if we both personally guarentee it even though I will be the sole owner of the LLC? Or would she have to own over 25% of the LLC?

Any input would be greatly appreciated!

Brandon Stiles · Answer

Thank you for the thorough response @Kerry Baird. I'll definitely check out MyFico!

David M. · Answer

@Brandon Stiles

Hmm...  That's probably pretty difficult.  Lets face it, you would need to have an established history of actually making money before you could get a credit revolver like that from a bank.  As unsecured debt, I'd be guessing it'd get pretty expensive.

Why not just continue to use hard money?

Honestly, I would ask your local banks to see what they would do.  And keep checking in as economic conditions change.  This is a completely different business loan.  I've gotten offers from Amex to give me business lines of credit, but nothing like $300k.

Good luck.

Mike Klarman · Answer

Very hard without the LLC not holding assets for collateral.

There is a trick out there with getting company credit cards and then going to a company who will cash you out of those cards and those cards usually hold a very low APR or no APR for the first 12 months.

I know someone who got 150k like that, BUT, what if you blow that money then you have that debt hanging over your head.  I'd have a very clear plan before you do something like that.

There's a guy I was told who owns a company and all he does is teach people how to tap into the business credit their company can access.  I mean this guy charges like 10% of what he can free up for you.  I heard he got someone like 350k before.

I know it involves opening up a bunch of cards (like 8 - 10) and charging/paying off in full repeatedly, he has other tricks too that push your credit up over 800 and then once you are there there are special programs offered and cards with big limits, he then directs you to a company that will provide you with the cash locked in the cards (for a fee of course).

Kerry Baird · Answer

If you find one or get approved for an unsecured BLOC, please do share.

Brandon Stiles · Answer

@David M. You've made a lot of good points. The goal is to be able to fund 2 projects at once with my own cash. I just wasnt sure if a $300k BLOC would be more easily accessible than waiting until I have the cash on hand.

I do plan on keeping my primary for at least 2 or 3 more years and I should be able to get around 130k HELOC on that and maybe I can get an additional BLOC a couple years down the road to help get me to 2 deals at once in a shorter time frame.

David M. · Answer

@Brandon Stiles

Oh, down the road..  As just mentioned above, its still hard.  Prime I think is about 9%?  So, add a few points on the spread and its the same as hard money, at least without the origination points.

Its still a loan.  So, you need to show lots of income to demonstrate that you can pay it back.  If you are really doing that well and only intend to do 2 flips at a time, its kinda a catch-22 situation.  To have income to get that much money, you'd want it to seriously scale your business.  With that much income, I'd have the vague suspicion you should have enough cash of your own to do the deals, or maybe just need a much smaller loc, say $50k, help with the float/cash flow.

Also, since you are flipping, you don't have any collateral and you are extremely market dependent on finding deals.

Try and see.  Get some business credits, perhaps amex specifically.  I keep getting offers from them to open a business line of credit.  (amex tends to operate more than just a credit card)

Kerry Baird · Answer

@Brandon Stiles, I haven't found very many people who answer about business lines in these forums.  Most folks are newer and don't post much about growing the business side.

I do recommend you go to the Business Credit forums on the MyFico site.  There is a table that I found helpful, with credit cards that report to the business or EIN side of things vs reporting on our own personal credit. We still have to PG the credit...personally guarantee...even though we have been in business in one LLC since 2012.  That's the business that I just was approved for an Amex Blue card.  It does not report against personal.  We have an Amex Platinum for our STR business.

People on that site talk about their approvals and put in their FICO scores, time in business and so forth, making it very helpful in getting started and avoiding cards/banks that report on the personal.  My own bank, TD, offered a credit card for my STR business, but it reports to personal.  I am looking for a small community bank that will not do that.

I have to bring my trust documents, my operating agreement, tax returns, the IRS EIN document.  I worked to get Dun and Bradstreet numbers, but had a recent lender say he can't see that.  I still haven't gotten a BLOC, but am looking at the MyFico site for that now.

Following on the previous poster, we did use hard money to fix and flip, also regular mortgages before I learned how costly they are for short term loans in closing costs (coming and going), and then DSCR mortgages that do not report to personal for LTRs and STRs.  I try to buy with seller financing now, and I renovate with Home Depot line and our own cash, and then refinance or sell later.

Ko Kashiwagi · Answer

Hi Brandon,

You'd need to find and build a strong relationship with a local bank to do this, which would require a lot of experience and time. They may also require you to put your investment properties as collateral. Since line of credit like this can close every 1-5 years, you would have to continuously renew this and it may not be cheaper than getting hard money. I know clients that have done these line of credits, and a lot of times they end up paying a lot in interest + more paper work.

Brandon Stiles · Answer

Thanks @David M. You think hard money would be cheaper than an unsecured BLOC? Even if I've built up a relationship and history with a local bank?

Brandon Stiles · Answer

****Just to clarify, I'm talking 2 or 3 years down the road after I have successfully completed 5 or 6 flips and have the additional income and experience to show for it.

Building line of credit for LLC?

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