Loan product to avoid impending failure??

Question

Based on the research I've done, I believe we need a Bridge Loan. What do you think? Details below...

We need a FAST cash-out loan product that requires only the personal guarantee of my business partner (60% ownership) to be used for: completing the remaining rehab and getting the 1st house rent ready, paying off revolving credit accounts to get her credit score up, and funding the other projects we have in the works.

To help bring you up to speed on what's transpired over the 11 weeks we've been in business...

We started our business on Dec 1, 2023, leveraged our "then" good credit/high w2 incomes to bootstrap the startup, assembled a rehab team, and are now about 2 weeks out from the completion of our 1st rehabbed property.

We've closed on 3 properties, all owned free/clear, and have paid for renovations with personal funds/credit.

My credit score was 810, but is now 592, due to excessive debt but 100% on-time payments, therefore can't personally guarantee a loan.

My business partner's score is currently in the 700s, but likely wont be for long, due to her revolving credit % continuously increasing, as we push towards the completion of the first rehab utilizing her remaining credit on her CCs.

Recently, I started researching the underwriting timeline for DSCR loans. Having just found out when credit is pulled and the appraisal is done in the loan process, I now think we may not be in an ideal position, and potentially not in a position at all, to take out a 30 Year Loan in the coming weeks.

I believe adjusting course, at least temporarily, may be the only way to continue moving forward. I foresee us being stopped dead in our tracks due to mutual insufficient credit scores in the near-future and the inability to perform a cash out.

Any input would be much appreciated. Thank you

Jay Hinrichs · Answer

YUP unintended consequences of using CC debt .  although to fall to 592 I would have to think you have some lates or something.. but anyway.

this is why HML exist in the first place or PML they are both the same. once you get this straightened out you may want to consider using those company for your debt if your going to refi and keep these.

The other thing your going to run into is cash reserves the DSCR lenders require as you grow they are going to want to see 6 figures in cash in a statement of yours.. So plan on that as well.

Tony Pellettieri · Answer

We just entered into a JV with a new partner, and I believe this is the strategy we are going to utilize that will be the most cost effective and mutually beneficial for all parties.

Robin Simon · Answer

You will generally need the bridge/hard money for any financing if theres any renovation or further work needed.  Generally will want to see fully finished/turnkey to get a 30-year option like DSCR high credit or not.

If you can get the first property completed and leased up and at least get the credit for yourself back up in the 650s pretty quickly then a DSCR Loan should be possible on that one - that can be the first step

Shaun Weekes · Answer

When you get these credit cards paid off you need to use business credit cards moving forward. Most of these cards don't show up on your personal credit report so your 700 plus fico score will stay that way.  This is also a great way to start up your business credit profile.

A bridge loan or blanket loan is the way to go and with free and clear homes I'm sure you will be able to find someone who can assist you.

I hope this helps and have a good one.

Arthur Schwartz · Answer

Consider bringing in a new partner to help with funding, and offer them a guaranteed return or a percent ownership

Jonathan Bock · Answer

@Tony Pellettieri

To clarify you have 3 pieces of collateral with no debt at all?  The walls are not caving in you will make it through just lessons learned for the next round

Chris Seveney · Answer

@Tony Pellettieri

You can still guarantee the loan.

I would rather have a guarantee from someone with 500 credit and 3 assets owned than someone with 800 credit and no assets.

Tony Pellettieri · Answer

No debt/liens against the property in the LLC. Plenty of personal debt used to acquire/rehab the properties.

Property 1: Cost85K Rehab30k ARV170KProperty 3: Cost147K Rehab70K ARV285KProperty 2: Cost60K Rehab15K ARV130KI’ve been making all of the payments for our personal obligations on time. Went from an 800 to 500 credit score as I paid off/transferred all of my partners/gfs debt including auto loan over to my name to position her to borrow heavily to gain access to as much cash as possible to get us up and running. Now here we are, and I’m just trying to figure out how to move from stage one to stage two. This will be our first cash out and while I’ve heard about how it all works in theory, I havnt actually done it.

Loan product to avoid impending failure??

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