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Real Estate Business Loans: How to Apply and Use Funding
September 02, 2021
Real-Estate-Business

Real Estate Business Loans: How to Apply and Use Funding

If you’ve decided to start your own real estate business, you know the potential profits are high. Of course, higher returns nearly always come with more risk, and the real estate market is no exception. Transactions often move at a slower pace than desired, and volatile property prices can change your financial position at a moment’s notice.

As a result, real estate business owners often leverage small business loan programs to manage their unpredictable cash flows. Or, they utilize funds to make strategic investments in their real estate business that they wouldn’t be able to afford otherwise.

Although you might be hesitant to take on business debt, a term loan may be the boost you need to get your real estate business off the ground. Without additional financing, it may be challenging to start or grow your business.

In this blog post, we’ll explain why real estate business owners benefit from business financing, how to apply, and how you can use funds.

How to Secure and Use Real Estate Business Financing:

Why Real Estate Companies Benefit from Business Loans:

Start-up costs can range between $10,000 and $150,000, depending on the type of business entity that you’re starting and its location.

Typically, new business owners in the real estate industry need to afford costs such as:

  • Website costs
  • Branded materials
  • Necessary business licenses
  • Utility bills
  • Office space

As an established business owner, you might need a business loan to help bridge gaps in cash flow when projects are stalled or housing prices unexpected drop. Ongoing expenses that existing business owners face usually include:

  • Rent and utility bills
  • Employee salaries
  • Advertising costs
  • Insurance
  • Real estate investments
  • Technology advancements

If your real estate business is already successful, you may decide to secure a loan amount to fund an expansion project. These types of projects can include acquiring another firm, hiring more employees, or remodeling your office.

Real-Estate-Business-Loan-In-Text

Real Estate Agent Business Loan Options:

There are two primary financing options to consider if you’re interested in taking out a real estate business loan. They include:

  • SBA Loans: The U.S. Small Business Administration (SBA) provides backing on loans to incentivize banks and other lending institutions to underwrite loans to small businesses. Their options include SBA 7(a) loans, SBA 504 loans, and Disaster Assistance options.

An SBA loan can be a great option for financing your real estate business. These loans often have higher borrowing limits — the maximum amount for 7(a) loans is $5 million — and long terms. However, they can also be more difficult to obtain without a strong credit history. In addition, you’ll need to prove that you haven’t been able to qualify for traditional financing options.

It’s important to note that SBA 7(a) loans can be used to buy fixed assets or obtain working capital for your business, but not to invest in real estate projects.

  • Alternative Financing: Alternative lenders and non-SBA-backed bank loans are also good options, especially when you don’t require significant capital. While private loans may be easier to obtain in many cases, they also typically come with higher interest rates and more restrictive payback terms. However, there are many money loan providers out there, so be sure to conduct research prior to applying!

In addition to these two common financing options, there are other ways that your real estate company can acquire working capital. For example, you can apply for a business credit card, pursue a line of credit, or ask family and friends for funds.

How to Apply for a Real Estate Business Loan

Applying for a service business loan can be a lengthy process and often requires you to provide significant documentation to the business lender. Many business owners find the loan application process to be daunting, but it doesn’t have to be!

The basic steps you’ll need to follow when applying for a real estate agent business loan are:

  1. Review Your Personal and Business Credit Scores: If your business is less than three years old, the business loan lender will likely evaluate your personal creditworthiness. Therefore, it’s important to ensure that you meet the lender’s minimum credit requirements prior to applying.
  2. Determine How You’ll Use Your Loan Amount: While this may seem like a given, you should be able to explain how you’ll use the loan amount to your lender. If you plan to use your loan for a cost that is restricted by the lender, your application will be declined.
  3. Prepare a Thorough Business Plan: The working capital lender will use your business plan to help determine your ability to pay back the loan — and how quickly you can do so. It’ll also show the lender what assets you have available to use as collateral, if necessary.
  4. Review Your Application and Submit It: Once you ensure that all information on your application is correct, press submit! Then, be sure to answer any questions your business lender has as they review your loan application.

In addition, if you’re applying for an SBA loan, consider visiting your local SBA office so they can help you navigate the application process. Although other lenders typically don’t have in-person offices, they should have a phone line or email address that you can use to ask questions.

Conclusion: Evaluate Your Real Estate Business Financing Options

Before applying for a loan for your real estate business, you should ensure that the profit you expect to make exceeds the cost of the loan. That way, you can be confident that you’ll be able to utilize the funding correctly. Then, once you’ve invested in your real estate business, you can payback the loan program on-time.

Since the real estate industry can be unpredictable, you may want to run several scenarios and then evaluate the various outcomes. Although it may seem obvious, the last thing you want as a small business owner is to take on debt that you can’t afford to pay back.

If you’re unsure if you can afford to make business loan payments, don’t be afraid to ask for help. The best business lenders will be happy to work with you and ensure you have a loan term that you’re comfortable with.

Editor’s Note: This post was updated for accuracy and comprehensiveness in September 2021.
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Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

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Fora Financial is a working capital provider to small business owners nationwide. In addition, the Fora Financial team provides educational information to the small business community through their blog, which covers topics such as business financing, marketing, technology, and much more. If you’d like to see a topic covered on the Fora Financial blog, or want to submit a guest post, please email us at [email protected].