Can You Buy a House with Business Credit?
Buying a house is expensive in the best of circumstances, and few people can afford to complete the transaction without a loan. Most homebuyers use their personal credit to secure the necessary financing, but that’s not the only option.
You can also buy a house with business credit if your profile is well-established. It’s harder than using your personal score when buying a house to live in yourself, but it’s a popular strategy among real estate investors.
Let’s look at some of the best ways to buy a house with business credit and further explore the pros and cons of doing so.
How To Use Business Credit To Buy a House
Most consumer homebuyers use traditional mortgage arrangements to buy a house, but real estate investors often employ alternative forms of financing. Here are some of the best ones to consider.
Business Lines of Credit
House flipping is one of the most common real estate investing strategies. It generally involves buying a distressed property at a discount, fixing it up to increase its value, and then reselling it — ideally for more money than you put in.
Of course, all of these steps require capital, and business lines of credit are one of the best financing products for the job. In fact, they’re popular among house flippers, primarily for their flexibility.
A business line of credit is a form of revolving debt that works like a credit card. You can use it once, pay off the balance, then use it again. However, their terms tend to be more favorable, including having:
If you’re looking to fix and flip in a relatively affordable market, you may be able to use business lines of credit to fund the entire process since some have credit limits as high as $250,000.
Business Credit Cards
Contrary to what you might expect, business credit cards can also be a beneficial financing tool for real estate investors. However, you typically need to use them in combination with other forms of financing.
It’s theoretically possible to purchase a house with nothing but business credit cards, but it’s impractical, even in places with low home prices.
Commercial accounts often have higher credit limits than their consumer counterparts, but they’re usually only around $50,000. That’s rarely enough to cover the cost of a home, even a fixer-upper.
In addition, their interest rates are much higher than other forms of business financing, making them unsuitable for carrying balances long-term. In May 2023, the average was a whopping 24.58%.
Instead of using them to purchase homes, business credit card accounts are typically another tool for flippers. They’re well-suited to covering the day-to-day expenses you’d incur while fixing a property, like the cost of a painting contractor.
Cards like those from Home Depot and Lowe’s can also help you earn cash back on these expenses. And in the best-case scenario, you can sell your property and use the profits to pay off your balance before interest has time to accrue.
Landlord Loans
House flipping is a great strategy, but it requires a lot of time, expertise, and energy, in addition to capital. In contrast, buy-and-hold rental properties are an attractive alternative for those who prefer a more passive investment experience.
As you probably know, this strategy involves buying a property and renting it out to a long-term tenant or a series of short-term renters. You can benefit from asset appreciation and hopefully have a positive cash flow monthly.
Landlord loans are one of the best loan options for this investment strategy. They function like a traditional term loan but are exclusively for prospective landlords looking to finance their rental properties.
These accounts usually come from independent lending companies rather than banks. As a result, they’re usually easier to qualify for and require less paperwork than commercial mortgages, but their terms also tend to be less favorable.
Most notably, landlord loans generally carry higher interest rates and offer lower maximum loan-to-value (LTV) ratios. In other words, they tend to require higher down payments, often between 20-25%.
SBA Loans
The Small Business Administration (SBA) is an agency of the federal government whose primary mission is to help Americans grow their businesses. They offer a variety of financing products, many of which you can use for real estate investing.
For example, some of the most popular loan type options include:
-
504 loans: These are long-term, fixed-rate loans meant to help you finance major fixed assets, including the purchase, improvement, or construction of real estate.
-
7(a) loans: These are more flexible, with long and short-term options plus fixed and variable accounts available. The SBA specifically calls them a good financing option for real estate purchases.
SBA loans are widely considered the gold standard of small business loans. Compared to commercial real estate loans, they usually have lower interest rates, higher borrowing limits, and longer repayment terms.
However, you generally can’t use an SBA loan to purchase rental or investment properties. They’re only available for owner-occupied real estate transactions where the owner uses the space.
Commercial Real Estate Loans
Last but not least, we have commercial real estate loans. They’re the business credit equivalent of the traditional mortgage and let borrowers purchase commercial properties with five or more units.
For example, that generally includes:
-
Retail spaces
-
Office buildings
-
Apartment complexes
These loans appear to have much in common with consumer mortgages. For example, they both typically come from traditional financial institutions. However, their terms are significantly different.
They tend to carry higher interest rates, provide shorter repayment terms, and require higher down payments. They’re also generally harder to qualify for without good credit.
Why It’s Better To Buy Your Own House With Your Own Credit
Generally, buying a house with business credit is only suitable for real estate investors. If you’re purchasing a property you want to live in yourself, you’re typically better off doing so with your own credit for several reasons.
First, it’s often easier to get real estate financing in your own name. Many lenders prefer to work with people who plan to live in the home they’re buying rather than investors because they’re lower risk.
Second, an owner-occupied mortgage loan usually offers more favorable terms. Not only are the interest rates cheaper, but the down payment requirements are much lower. For example, you can buy a house with an FHA loan for as little as 3.5%.
Finally, buying a house with business credit requires that you own a business, ideally with well-established business credit. Most people simply aren't business owners.
Even if you have a bad personal credit rating, you should consider waiting until it improves rather than resorting to your business credit.
Benefits of Buying Property With Business Credit
If you're a real estate investor looking to buy an investment property or a small business owner in need of commercial space, there are advantages to using your business credit score. Some of the most significant benefits include the following:
-
Avoid using your personal credit score: When you use business credit to buy real estate, you can protect your personal assets and creditworthiness. Defaulting on your loan is much less risky to you without a personal guarantee.
-
Potentially higher borrowing limits: Because commercial financing arrangements have higher credit limits, using your business score could increase your borrowing power and help you scale your operation.
-
More flexible financing arrangements: With your business credit score, you can often access a more diverse mix of financing products than you could personally. That can help you execute more sophisticated real estate deals.
If you’re going to buy real estate with a small business loan, it’s essential that you shop around extensively for the best deal. Business loans differ significantly, and your profits are on the line.
When you find a lender you like, focus on building a relationship with them so you can work together on future projects.
Build Business Credit With eCredable
If you want to use business credit to fund your business in real estate, you must build a good business credit score. One of the best ways to get started is with a bill-reporting service like eCredable.
Our Business Lift program lets you add unlimited recurring expenses, such as office rent and electricity, to your business credit report. They’ll show as separate business tradelines and flesh out your credit history with each business credit bureau.
In addition to your ongoing payments, we can report up to two years of previous payments, which is one of the best ways to boost your credit score quickly.
With no credit check and no cancellation fee, there’s no risk to giving it a try. So don’t wait — sign up today and start building your business credit!
Learn More About Building Business Credit:
- Low Risk Industries for Business Credit
- How To Build Business Credit Without Using Personal Credit
- How Long Does it Take to Build Business Credit?