Lending Options: Conventional or Commercial

[Warren Sterling]

First of all....Thank you for your answers and your experience!

I am using an investor and he has offered to go to any financial institution and get a loan and/or line of credit to help me grow our money.

I do not have a property picked out, but was made to understand that I needed to have funds ready to close the deal once found and secured.

I was thinking that a commercial line of credit would be best, because we would be able to use it for any deal and would also have enough available to perform any needed rehab to the property.

The business plan is to flip a few properties to grow my money to later invest in buy and holds.

So here is the questions. Do I have to have an established business with EIN and all to qualify for a commercial line or commercial loan? Will I need to provide a business plan or any documents regarding the property as it has not been selected or secured yet? Would a retail conventional mortgage be a better choice?

Do I have any missing pieces that you see that I can include to have a better chance of approval?

Thank you again,

Warren

[J. Martin]

@Warren Sterling ,

I'm going to assume you're not super experienced at flipping since you're asking about the funding, so first, be sure you're comfortable risking someone else's money with your level of experience.. if I'm wrong, totally ignore me here.. 

Ignoring that issue, and purely speaking about the financing, unless your partner is EXTREMELY well-heeled, you will most likely need to post real estate collateral for a line of credit. So if you don't have residential RE, you can't do a HELOC type product on the residential.

So here is the questions. Do I have to have an established business with EIN and all to qualify for a commercial line or commercial loan? 

NO> You can set up an LLC specifically for a loan. There is no set number of years the business needs to be in operation for commercial loan. However, if you do not have a cash-flowing company with experience, you will not get a loan without RE collateral unless your partner has another business, lots of NW, liquidity, etc..

Will I need to provide a business plan or any documents regarding the property as it has not been selected or secured yet? 

If you get the line of credit based on the equity of an existing property, the new property won't matter as much. You'll probably have more freedom with a residential loan HELOC. Commercial HELOC might ask more quiestions, or restrictions on when you pay it back (like when you sell the flip property). Whereas w/ residential HELOC, you just take the money as you please. No questions asked. (as long as you don't sell the underlying collateral for the loan).

This is assuming you're getting the loan to buy your flip property with cash, and not trying to get a loan on the subject flip property. 

Would a retail conventional mortgage be a better choice?

I think the residential HELOC will give you more flexibility, if you have that collateral to post. They won't ask you much about what you're doing with it, or impose restrictions, as long as you meet the LTV and DTI requirements (or your partner does)

Do I have any missing pieces that you see that I can include to have a better chance of approval?

For commercial, a lack of experience may be an issue. Residential, they don't seem to look at any RE experience when assessing ability to repay a loan. 

Good luck!