Building Business Credit for Your Real Estate Business

– Hi, Clint Coons here with
Anderson Business Advisors, and in this segment I’m going
to discuss building credit for your limited liability
company or corporation. You know, I run into people
a lot at my workshops that come up to me and they say, Clint, I’ve signed up
with this credit company that’s going to help me create
a business credit profile for my LLC or my corporation, and then I’m going to
be able to go out there and buy real estate and I won’t need to sign
personally on any of those loans. And so do you think it’s a
good idea that I paid them three, five, $10,000 to do this? Now, you can probably imagine
what my answer might be. Hell no, I don’t think it’s a great idea. Why don’t I think it’s a great idea? It’s plain and simple. I’ve had my business set up for 19 years, and I’ve been, you know, I’ve found a lot of
success in my business. I’ve never yet been able
to buy a piece of property where they don’t pull my
personal credit profile, even if it’s a residential mortgage that I don’t have to sign personally. Yes, if you’re going to go out there and you’re going to obtain
a non-recourse mortgage, granted, in those situations, you don’t have to sign personally, so it’s not an issue. It has nothing to do with
your business credit profile. But the idea that you’re going to create this credit history for a company, and I have a credit history
of 19 years for my business, never had a loss, always been profitable. That still has never helped me
obtain a residential mortgage and not have to sign personally on it. So the point is, is that if you think you’re
going to build this up and you’re going to be
able to buy real estate, it’s not going to happen. It just won’t occur for you. So this concept that
people sell individuals about building business
credit for their LLC, and I’m probably going to get
some hate comments on this, people that sell it, that they say Clint doesn’t
know what he’s talking about, but I challenge you to show
me where that ever happens, ’cause I’ve never seen it and none of my clients have
never been able to do it. So don’t buy it with that in mind or don’t invest into building
business credit for your LLC or your corporation with the idea in mind that you’re going to be able to
take down a $200,000 property and not sign personally. It’s not going to hit your credit profile. As I stated, the only
time that’s going to occur is if you’re getting
non-recourse financing, but then again, they’re still going to run your credit to see if you’re credit-worthy even though they’re not going
to make you sign personally. And B, a lot of times
with those types of loans, in order to qualify, you have to show you’re
an experienced investor, and I have those types
of loans in my portfolio, and they want to know, you know, how many properties I own, how long I’ve been investing for, so they know they’re not
starting out with someone that has relatively no
experience or low experience and then their potential loan
is going to be in jeopardy two years down the road ’cause you’ve mismanaged your properties. So when it comes to it, when should you actually consider
building business credit? Well, for trade lines, and this is where I think it
could be beneficial to you. So if you have a company and you want to generate trade lines where you don’t have to sign personally, then it makes a lot of
sense to start looking at building up a credit
profile for that business. So let’s say you had a corporation. This is where I think it would be, make most beneficial sense
for anybody into real estate. Building up a credit line with, you know, Home Depot, Lowes, paint
companies, other suppliers, is a great thing to do, because then again, it doesn’t require you to give
a personal guarantee on that. It goes right to your corporation. They’re not going to look at your credit. You can maybe go out there
and find some loans from, small loans from institutions that’ll actually give you
a business line of credit that they may not require
your personal credit on. Again, those are harder to obtain. You better have a good
working relationship with the bank in order
to get one of those. But they’re also going to, again, look at your business credit profile. So what does it take to set
up a business credit profile and build it? It doesn’t require a lot. I mean, yes, you can hire
someone to help you along through that process, and if you’re one of
those, you’re like me, you’d rather have somebody
else do it for you, great, go ahead and do that. If you want to do it yourself, it starts off with getting
a DUNS number, right, for your business. So once you have your DUNS, which is Dun & Bradstreet number, associated with your business, then you want to start
taking out credit cards in the name of that business. You want to open up some accounts
in the name of that business to start reporting back
to that credit number so you begin building your
overall credit profile for your company. When you’re doing that, though, keep in mind that your business can not be set up in a
state that offers anonymity. That is, you’re going to
have to be on that company. So if you have this corporation set up, don’t use Nevada, Delaware, or Wyoming. Typically if you’re, live in, say, Florida or Texas or Oregon, set it up there and your name will be associated with it, because what they’ll
do is they’ll look back to the Secretary of State’s website to see if the person
who’s applying for this is actually listed as an officer or director of that company. Once you’ve done that and
you’ve started that process, then it’s going to give you the
ability then to go out there and maybe get some larger lines, not have to sign personally
and get your name off there, so now you’ll have access to suppliers, and that could really benefit you. But again, this concept of, I’m going to be able to buy
real estate all over the country and never have to sign personally. They’re just going to look
at my company credit profile. It’s not going to work. It’s never happened for me. It’s never happened for my clients. The only time it sets up that
way is if they’re using loans that are structured in a way where that was never going
to be required anyway and it doesn’t matter if
you have a DUNS number or a business credit profile, you still would’ve got that loan. One last thing I’d like to
hit on that is that, you know, when it comes to your business, something I tell people a lot is if you have an entity set up here, what you should do, let’s say this is my corp, and it doesn’t have to be a corporation. This could be a limited liability company. I’m just going to use a corp. If I had this corp here, you should get some credit cards in the name of your corporation. I would get an Amex in the
name of my corporation. I would get a Visa. A couple companies that I know, there’s Wells Fargo, B of A, Chase, these three companies, if you get a, you know, these are business cards, by the way. You get a business card in
the name of this company. Now when you apply for the business card, you’re going to have to give
’em your personal credit and you’re going to sign a
personal guarantee for these cards, so that is something you’re
not going to get away from, but by taking out the cards
in the name of your business, these companies then that
you’ve taken out these cards under the name of the business, they report back to the business and not to your personal credit. Now this is important. You know, in running my business here, all of the filing fees for our clients in setting up their LLCs and corporations, we run on a card that
I opened up with Chase a number of years ago, and it is my personal credit they use in order to determine the
credit limit on that card. And so when I needed to extend it from, I think it was from $75,000 to $125,000, they actually re-ran my credit. And so, you know, I do take that hit when
they run the credit. But each and every month, let’s assume that the balance, we run $95,000 in filing
fees for our clients. That does not show up
on my personal credit. So when I go in and I apply for a loan, they don’t see that there’s
this Chase card out there in the name of my business that is, I’m a personal guarantee on, because Chase reports back
to the business credit, not to Clint’s credit. So if you’re starting out your business or maybe you’ve been
in business for a while and you’re using your
personal cards, you know, to pay for things that are
business-related, stop, because that’s only hurting
your personal credit. Get out there and get some
business cards established in the name of your corporation or your limited liability company and start running those
charges on those cards, not on your personal cards. They all come with the same
bells and whistles, you know, the points and all that that you can use, but it’ll save your personal credit. So that’s something that I’ve found. I haven’t, these are the cards, actually, that I carry. I don’t carry the Wells Fargo, but I have a B of A Visa,
I have a Chase Visa, and I have an American Express, and it’s really helped
me on the personal side with my personal financing on doing my own personal
real estate deals. My name’s Clint Coons with
Anderson Business Advisors. This is what we talked about
was building business credit for your business. (mid-tempo piano music)

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