Can You Get A Business Loan To Buy Rental Properties

Using a business loan for rental property can help you grow a real estate portfolio by providing funds to purchase single or multiple rental properties and provide money for renovations and upgrades to increase rental income.

can you get a business loan to buy rental properties

When shopping for a business loan for an investment property, the first stop is the bank or credit union with which you're already doing business. The odds are that the branch manager and many of the employees already know you by name and may welcome the opportunity to earn more of your business.

Traditional banks, credit unions, and private lenders offer business term loans. There are many term loan options with different loan sizes and interest rates. Term loans for businesses provide funds to buy equipment, update office space, and purchase real estate. Funds are received in one lump sum and paid back over a period of time, typically with a fixed interest rate.

Short-term loans, sometimes known as bridge loans, usually have a repayment term of 12 months or less and may be a good option for purchasing a rental property quickly before seeking a traditional bank loan. Medium-term business loans typically have terms ranging from 1 to 5 years, while long-term business loans may have terms of up to 25 years.

A business line of credit is similar to a home equity line of credit (HELOC), except that the loan is for a business. A company can draw on the credit line as needed and only pay interest on the amount of funds borrowed. The credit line is replenished as the loan is paid back, and funds are available to borrow again.

Lines of credit may be secured by assets the business owns or unsecured with no collateral backing the loan. Interest rates and fees are generally lower with a secured business line of credit. However, if the loan is not repaid, the lender may take the collateral used to secure the loan.

Invoice financing is used to borrow money against the value of unpaid customer invoices. The lender collects a percentage of the invoice value as a fee, and as customers pay their invoices, the business pays back the loan.

Qualifying for a business loan and receiving funding from a private lender may be faster, although they typically come with higher interest rates and fees than other business loan options. However, a private lender may be able to structure a business loan for rental property to better meet the needs of both the borrower and the lender.

Portfolio loan options vary from one lender to the next and typically include loans with fixed and adjustable-rate permanent financing, short-term bridge loans, and business lines of credit. Provided a borrower can repay the loan, there are generally no limits to the number of rental properties a business can finance.

As with private money loans, portfolio loan interest rates and fees are typically higher than traditional forms of financing. They may also be nonrecourse, so they do not require a business guarantee or a borrower's personal guarantee.

A blanket mortgage allows a business entity to finance multiple rental properties under a single loan rather than holding individual mortgages for each property. Generally speaking, the underlying assets serve as collateral to secure the loan, making blanket mortgages a popular option for real estate developers and businesses buying multiple rental properties.

Blanket mortgage loans typically have a release clause that allows individual properties to be sold without refinancing the entire loan. However, a borrower who wishes to refinance may have the option of refinancing the whole loan.

Obtaining a blanket mortgage can be a convenient option for a business because loan underwriting and funding usually take less time, and there is only one monthly mortgage check to process. On the other hand, defaulting on a blanket mortgage can put all properties at risk of being foreclosed on, and loan fees and interest rates may also be higher than traditional mortgage financing.

The SBA offers 2 small-business loan programs for businesses purchasing real estate, SBA 504 and SBA 7(a). However, neither can be used for speculation or investment in rental real estate nor to purchase property held for investment purposes.

An SBA 504 loan is designed for businesses with a net worth of less than $15 million and provides long-term, fixed-rate financing for a company to purchase major fixed assets that promote business growth and job creation. For example, a 504 loan can be used by a business to buy or construct an owner-occupied building or improve an existing facility.

The SBA 7(a) loan program provides short- and long-term working capital for small-business owners and is the best option when real estate is part of a business purchase, according to the SBA. The maximum loan amount is $5 million. Primary uses for funds include purchasing real estate, building or renovating an existing building, acquiring a new business, or expanding an existing business.

Business loans for rental property are found through various sources, including traditional, private, and portfolio lenders. There are options for acquiring new rental property, renovating existing rentals, and expanding a real estate investment portfolio. As with any other type of financing, a business owner should take the time to analyze the pros and cons of each loan option and seek the advice of a certified public accountant (CPA) or financial advisor.

Other advantages include deducting the loan interest on your income taxes and establishing or boosting your credit score by making payments on time. Since these loans can be used for almost any business purpose, flexibility is an advantage as well.

Also, check with the lender about any prepayment penalties. If your business outgrows the rental property faster than you planned, you will want to pay off the term loan early in order to finance bigger accommodations.

Contrary to what many people assume, the U.S. Small Business Administration does not actually make loans. Instead, it partners with banks and other trusted lenders to share the risk involved in lending money to a new or growing small business. Because SBA loans are partially guaranteed by the government, they are attractive for lenders as well as small business owners.

SBA business loans can help small business owners like you get the funding needed for just about any purpose, including a business loan for rental property. The goal of the SBA is to offer these type of loans at a more affordable cost than may be available through a traditional business loan.

For use as a business loan for rental property, the big plus with a line of credit is that after you repay the amount you use for the rental, it can then be used at will for any future funding needs you may have.

Just like any other loan request, the question of getting a business loan for rental property will require specific types of documentation. In order to verify that you are an acceptable credit risk for them, lenders want to see both personal and business information that demonstrates your business knowledge and financial stability.

Yes, lenders will want to verify both personal and business credit reports. They will access the three major credit reporting agencies themselves (TransUnion, Equifax, Experian), but it would be smart for you to check them in advance to determine if there are items or information that need attention before beginning the business loan process.

Information about the size, age, and condition of the buildings involved; area surrounding the property and any potential for liability and risk factors; and tax value of the property are all things a lender want to know when considering a business loan for rental property.

SBA loans cannot be used for businesses in which the primary source of income is real estate investment. In fact, SBA loans can only fund real estate that is owner-occupied, and will be used primarily by the business that is taking out the loan. However, in most cases, a business only needs to occupy 51% of the property it has purchased. This means that they may be able to rent out the rest of the property to other tenants in order to supplement their income. Businesses that are getting financing to construct a new building for their business are often held to a higher standard; in most cases, at least 60% of the building must be occupied by the borrower, meaning that 40% or less of the property can be rented out to other tenants. These rules apply to both SBA 7(a) and SBA 504 loans.

To qualify for an SBA 504 loan for real estate investment, the business must be a for-profit small business with a net worth below $15 million. The loan must create or maintain jobs, and the property must be occupied by the business. Investors must also have good credit and a good financial history. Additionally, borrowers must not change or alter the ownership of their business without first seeking the approval of the SBA, and they must seek the permission of the Small Business Administration before attempting to take out any additional financing that uses their commercial property as collateral. The SBA also is very strict in ensuring that borrowers pay their federal taxes, as well as hazard insurance for their property.

SBA loans are typically used to finance the acquisition or refinance commercial properties like office buildings, warehouses, industrial structures, retail assets, and many other types of owner-occupied commercial real estate. However, they cannot be used for multifamily properties.

The Small Business Administration (SBA) offers a variety of loan products that can be used for real estate investment. However, there are certain risks associated with using an SBA loan for real estate investment. For instance, borrowers must not change or alter the ownership of their business without first seeking the approval of the SBA. Plus, borrowers need to seek the permission of the Small Business Administration before attempting to take out any additional financing that uses their commercial property as collateral. The SBA also is very strict in ensuring that borrowers pay their federal taxes, as well as hazard insurance for their property. 041b061a72