Any advice about how to get a business OR personal line of credit?

Question

Hey guys! Im looking for advice here.I've been looking into trying to open up an unsecured line of credit, mostly through my business. The issue is i've been mostly getting denied simply because of the fact that my business doesn't produce monthly revenue, since I'm primarily a fix & flipper. My revenue is based off project completion, which is usually every 3-4 months before a major deposit happens. So, my first question is if anyone is aware of a lender that provides an unsecured line of credit for a situation like that?My second question is, since i'm almost certain at this point I won't get approved for a business line of credit, would it be better for me to just open a personal line of credit instead, and if anyone had any recommendations for a company to open one with? My credit is solid, about 750+ with 100% payment history. My current credit card line(about 5 credit cards) totals out almost 60k. The main reason i'm looking for an unsecured line of credit is to meet unexpected business needs of needing to pay cash. For example, I can't pay my contractors through a credit card, they need to get paid cash. A personal line of credit that allows me to draw out cash can help me tremendously, especially since I can most likely pay off the debt immediately after I sell the home, as well as this would help me exponentially expand the business. I can't use cash advances off my credit cards since they're way too low and charge absurd fees.All advice is welcomed, thank you!

Patricia Steiner · Answer

A business credit line requires business income that can service the monthly debt - and without that, as you have found, you're not qualified for that product (for now). Your five credit cards may hurt you obtaining unsecured credit lines. For example: your credit-utilization ratio. That's the amount of available credit compared to what you owe. If one of your credit cards has a $10,000 limit and you only owe $500, you have $9,500 in credit available to you that you’re not using. Lenders like that; but if you owe $9,500 on that same credit card account, you have a poor credit-utilization ratio and it will lower your credit score and your chances for other credit including a mortgage. I recommend that you set aside a portion of your net income per project as a liquidity contribution if you will to start building your wealth and liquidity. You may want to consider an equity line of credit to pay off some of those credit cards; that would provide you with lower interest rates and funds that you can withdraw from the line for cash and other purchases. Having said that, the unsecured credit used for a specific project should be paid off at project end, right? The bigger issue here may just be that you're working hard, you're paying the bills, but you're not building wealth. It's a different strategy based on not just getting by but building a surplus and creating wealth.Hope this helps...

Henry Clark · Answer

You need to build a relationship. Talk with a banker and explain what your business is and the need for the line. Recommend up front if you have cash out it at that bank as a cd or money market account. Have the bank put a hold or lien on that investment against this secured line of credit. Start small. Work with the banker to increase as they get to know you. Bring them along for the ride in your investments. Once they understand your business but more importantly know you. Then go for the larger line.

Jim Duncan · Answer

@Faiz KanashYes, any business credit lines we've done are always based off of a percentage of the consistent monthly revenue, so it's very tough for a fix n flipper to get approved for those types of loans due to the inconsistency of the deposits.As someone else mentioned though, your best bet could be a HELOC on any property you own currently own. HELOCs are typically faster and easier to get than a typical mortgage, cheaper on fees, can now often come with fairly competitive fixed rates, and can be used over and over again for several years once you set it up.

Jonathan Klemm · Answer

Hey there @Faiz Kanash - Network, network, network, apply, apply, apply How long have you been in business? That will play a key role in getting a line. After over half a dozen applications we are just getting approved for an SBA loan with Huntington Bank here in Chicago for a business line of credit. Happy to make an intro to HB if you'd like. We don't have "reoccurring" revenue, but we have income coming in more frequently than you do. Also, as the company's owner, I am the guarantor for the loan. I also have a HELOC on my primary, I got the loan from first midwest - connect with @Michael Barbari. I can also make an intro to him as well.Being in the general contracting space I feel your pain, cash is king and needed to keep projects moving.

Michael Barbari · Answer

Thanks for the tag, @Jonathan Klemm !! We're Old National Bank now after our merger last July. Always happy to help.

John Warren · Answer

@Faiz Kanash I have used a HELOC on my primary to do exactly what you are describing here in the past. The HELOC allowed me too pay my guys as we finished parts of a project with the knowledge that I would get the cash back in the very near future. For the business, this is definitely a tough thing. I feel this will be more of a relationship bank that would do this deal, so maybe call a bunch of small, local banks who are real estate friendly. You are unlikely to go to the big banks like a Chase or BOA and get a LOC like this.

Patricia Steiner · Answer

@Faiz KanashI'm proud of you...you're doing a lot very well. It sound like you're operating as a sole proprietorship whereby you are the business. If you want to change that and have the business operate as a 'fix and flip' enterprise, you will want to have separate accounts and maintain financial records for the business. At this point, you would show that you personally have LOANED the business money which is paid back to you at the end of the project. That will start to give you the financial records that you need to secure a small business loan in the future. I recommend that you go to a community bank and meet with someone in the small business lending department. Learn what they will require to do business with your business. Invite the banker to come to see your projects and build a relationship with that advisor. It sounds like you've got all the pieces in place - and that they just need to be organized differently to get you where you want to be. Rock on!

Charles Burgess · Answer

Hi Faiz, thanks for posting. One quick and easy option is to get a credit card with a credit union as these typically offer low interest rate on cash advances. Typically cash advances on national credit cards offer interest rates at ~30%. But with credit union credit cards, these rates have the option to be much lower. Seeing that you're in Chicago, First Northern Credit Union is advertising a Visa Platinum card with cash advance interest rates as low as 8.99%. If you're not familair, a cash advance is when you can pull actual cash off your credit card, at a pre determined interest rate. I actually used mine to purchase my first property. Please let me know if you have any questions.

Alex Hroma · Answer

Hi Faiz, my name is Alex, I can help you look at deals and fund your projects, would be happy to have a conversation.

Faiz Kanash · Answer

I appreciate the advice! To add more info about my debt, i rarely use up more than 50% of my available credit on my card. So if i have a 10k credit card, i usually only use up like 5k of that, but that debt usually gets paid off in full by the end of the month. When it comes to my personal wealth, i do have a lot of cash liquidity and have a very low DTI. The reason I'm looking for a personal line of credit is so i can use less of my own personal funds for projects, and to build my business as well as my wealth at the same time. Im very good at preventing myself from being overleveraged so it'd be more beneficial for me to have an unsecured line of credit.