6 Ways To Finance Your Real Estate Business

6 Ways To Finance Your Real Estate Business

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Starting up a real estate business could be a bit risky should you not know the rules and tools of the game. And even then, you may still have to bear the cost of it on your own for the first couple of years or so, until your business starts picking up the pace.

As one of the most expensive lines of business, getting into real estate means that you have that sort of money.

If not, here are your options:

1. Bank Loans

One of the most common ways of getting working capital business funding is bank loans as claimed by 54% of real estate buyers.

With benefits such as low-interest rates, zero processing fees, and no penalty on early payments, bank loans would top our list of funding options on any given day for a real estate business.

Although different banks have different criteria, the most important factor that all the banks consider is your past credit history or payment record as far as approving a loan request is concerned.

Once you are found eligible, the process takes about a month or two to get you the funds needed to meet your start-up costs as well as the initial office expenses. 

There are many types of real estate loans that you can find in the banking market with their own advantages and EMI options. So make sure to check your requirements and apply accordingly. 

2. SBA Loans

Next up, we have Small Business Administration (SBA) loans that are also backed by the government due to their invested interests in the financial bodies.

Since SBA loans come with a full repayment guarantee for the banks, it makes them willing to take more risks and approve a higher borrowing limit of up to $ 2 million, perfect for real estate start-ups and entrepreneurs.

The only catch is, that SBA loans are usually subject to higher fees, a lengthy verification process, good credit worthiness, and a higher tax return for qualification.

If you think your profile meets this criterion, then small business loans may be the very type of fast business working capital that you need. 

3. Private Lending

In case you don’t meet the necessary norms for a bank loan, you’ll always have the option of borrowing it from a private party such as an individual lender or a financier group. 

The key difference between a bank and a private lender is the lack of formalities and documentation involved with the latter, i.e. a simple approval process with easy eligibility criteria.

As easy as it is to obtain though, hard money loans from a private investor come with relatively higher rates of interest as well as a larger down payment or collateral.

As a result, these types of loans are only suitable if you need fast business working capital for a high-risk operation or real estate project. 

4. Crowdfunding

One of the more recent and advanced forms of funding is none other than crowdfunding. It’s where you raise funds for a business by going onto social media and online crowdfunding platforms such as CrowdStreet, DiversyFund, EquityMultiple, and RealtyMogul.

Instead of applying for a loan from a single investor, crowdfunding allows you to get smaller funds (as low as $1000) from multiple investors in exchange for profits, stocks, dividends, event invitations, and other rewards.

With no securities and liabilities, crowdfunding may very well be the best working capital business funding option for small businesses.

5. Micro-financing

Another great source of small business working capital is micro-loans. Unlike standard business loans, micro-loans are relatively smaller ranging between $13,000 to $50,000.

And this is why their approval processes are also lenient.

But just because they are easily approved does not mean that you should blindly borrow the amount without checking your overhead costs!

Micro-loans usually come with a higher rate of interest than traditional bank loans which is something you should keep in mind prior to applying for such loans.

6. ROBS

Those who are not interested in borrowing a loan have a choice of going with Rollover for Business Startup (ROBS) providers.

It’s where you withdraw funds from your own retirement account or IRA without having to worry about the processing charges, incurring tax, or withdrawal penalties.

Plus since you’d be using your own funds, there are no liabilities of repayment or any risk of credit inquiry.

The drawback here is that you cannot invest this money to buy real estate similar to an SBA loan. Moreover, you can only withdraw the amount which is available in your retirement funds and nothing more.

At the same time, you don’t want to pull out all of your pension only to end up with nothing for retirement in case your business doesn’t work.

As you can see, each of these funding options has its own pros and cons, and selecting one depends entirely on your business goals and requirements.

 So, calculate your budget carefully and choose accordingly!

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