Commercial Credit Line vs HELOC Credit Line

[Jason Jones]

All - I have been doing my research about my options to fund our 2nd rental property purchase, I have been calling some local banks, and would like some help/info please. Our former primary residence SFR in now our current 1st rental. The 1st rental is valued at $440k by a local Realtor market appraisal in March 2020, and we currently owe $6,000 on the remaining mortgage....a very high equity in the house for sure.

To fund the purchase of rental #2 I was planning on pulling the 20%-25% down payment out of rental #1 via a HELOC on the rental, and after 3-4 places to call no one will do a HELOC against a rental except PenFed. I read this may be the case on other forum threads, but I thought I'd try anyways, and it is true! Local banks have told me they are very likely willing to give me a commercial line of credit instead of a HELOC, using the rental #1 as the collateral. The value of the 1st mortgage is so little ($6,000) that they are fine being in 2nd position for a few months time until it is paid off, and then they become in 1st position I guess.

PenFed will do the HELOC against the rental (pending approval) for 4.75% currently, whereas a couple local banks will do their commercial line of credit for 4.00%-4.5% depending on the line of credit size amount. Each place has their own slightly differing terms on an origination fee, and the like. And if I were to sell rental #1 down the road not overly far into the future, closing the line of credit early and paying off the line early by selling rental #1 also has fees and costs to that as well.

What is the difference, pros or cons, of using a commercial line of credit against rental #1 to fund the 20%-25% down payment (plus a little repairs money) for rental #2, as compared to using a HELOC against rental #1?

Thank you - Jason