There are a lot of upfront expenses to running a real estate business, including heavy marketing and advertising expenses. But agents and brokers don’t get paid until a sale closes and funds, which means there can be a sometimes significant gap between when the business spends money and when it earns money.
Additionally, interest rates have been rising, and will likely continue to do so. Higher interest rates mean higher mortgage rates, which make it more difficult for both prospective homeowners and commercial real estate buyers to qualify. Sales are slowing in many markets, and 2023 promises to be an especially challenging year for the real estate industry.
Learn about the types of small business loans and financing your real estate business can use to survive the ups and downs of often unpredictable cash flow.
Can Real Estate Brokerages Get Business Loans?
Real estate brokerages may be eligible for a variety of small business loans depending on qualifications. These may include:
- Business lines of credit
- Business term loans
- Business credit cards
- Small Business Administration (SBA) guaranteed loans
- Commercial vehicle loans
We’ll explain each type of loan in more detail in a moment.
Can Real Estate Agents Get Business Loans?
Real estate agents are typically independent contractors and also may face significant expenses, including the cost of certifications and licensing, along with marketing and advertising.
They too may be eligible for financing. The same types of financing available to brokerages may be available to agents, if they meet lender qualifications. New real estate agents, though, will probably face significant hurdles to getting financing as do most startups.
Do Real Estate Agents Use Personal Loans For Business Expansion?
Real estate agents and brokers (including REALTORS) who don’t qualify for financing may find they need to turn to personal savings or personal loans to finance their businesses.
Using personal loans to finance a business is always risky. If the business can’t pay back the loan, the borrower will be on the hook for the entire loan amount. In addition, a personal loan affects your personal credit.
If you need short-term financing, you may want to consider a small business credit card. We’ll explain the advantages in a moment.
How Do I Get Financing To Expand My Real Estate Sales Company?
Small business lenders often review three main factors when considering a business loan application:
- Revenues/cash flow
- Time in business
Most small business lenders will review income and cash flow to determine loan eligibility. Very often they will require the business owner to share business bank statements, or link a business bank account, to analyze revenues when underwriting the loan. Traditional bank loans or SBA loans may also require copies of business tax returns if available.
Warning: If business revenues have been consistently dropping it may be harder to qualify for financing. If that’s the case, you may need to consider alternatives like business credit cards.
Some lenders may require a personal credit check on the owner (or multiple owners, if the business is owned by more than one person). They may also require a personal guarantee so if the loan can’t be repaid by the business, the lender can try to collect from the borrower’s personal assets. It’s a good idea to monitor your personal credit scores so you know where you stand.
Lenders may also check business credit, so make sure you check and monitor your business credit as well. If you don’t have a business credit history, you’ll want to start to build business credit as it can provide more financing options in the future.
Lenders prefer to lend to businesses that have been in business for at least two years, though some may be more lenient if the business is making enough money to meet their minimum annual revenue requirements.
Startups and newer real estate brokerages may have more of a challenge getting financing. However, if you are a successful agent with a solid track record and you’re now opening your own brokerage, your previous experience may be helpful in terms of qualifying for some loans.
What Are The Best Loans For Real Estate Sales Companies To Get Loans?
Here are 5 types of small business financing for real estate agents and brokers to consider:
1. Business Credit Cards
We’ve mentioned business credit cards several times for a reason. They can offer many benefits to business owners.
They are one of the easiest types of financing to get. Credit approval is usually made based on the owner’s personal credit scores, not the business.
Most issuers don’t require documented business revenues, though you do have to meet minimum income requirements that can come from sources besides the business.
Repayment terms are flexible as you can make the minimum payment or pay the debt in full.
You may be able to get a 0% APR introductory rate you can use to refinance more expensive existing debt or simply to provide working capital for several months.
Finally, most small business credit cards do not report to personal credit (unless you default) which means you can avoid impacting your personal credit scores when you’re carrying a balance.
2. Business Line of Credit
Every established business should consider a line of credit. It provides access to credit for short-term needs, no questions asked. You only pay interest on the amount you borrow, and repayment terms are often flexible.
3. Business Term Loans
Business term loans are great for specific projects where you know how much you need to borrow and for how long. They provide a lump sum of money the business can repay over several months or years.
4. SBA Loans
The US Small Business Administration doesn’t make loans (except disaster loans, including pandemic relief loans). Instead it guarantees a portion of loans made by approved lenders. Certain real estate businesses may be eligible for one of several SBA loan programs and the terms are usually quite attractive. However these aren’t quick loans; expect the origination and funding process to take at least 1—3 months.
5. Commercial Vehicle Loans
Real estate agents often need a well-maintained attractive car if they will be showing properties to clients. A commercial vehicle loan may be an advantageous way to finance that vehicle.
This article was originally written on October 14, 2022.