Re: Working lines of credit questions, - Posted by Ed Garcia
Posted by Ed Garcia on October 18, 2004 at 11:28:22:
A WLOC is not a credit line that is handed out to every borrower or investor. This credit line is provided to borrowers on a case-by-case basis. Remember banks can do any type of loan that they choose too and can create or accommodate terms to suit the borrower.
I can?t teach you what I teach in my workshop, in just one post to help you get a WLOC.
Each borrowers circumstances are different and I modify their presentation to the bank based on their circumstances and my knowledge of bank requirements. Although people have the opinion that banks make loans based on information that is black or white, that is not true, because with each investor there is definitely a gray area and I do a lot of modifying and compensating in that area.
The mechanics and criteria of a ?Working Credit Line? can vary depending on the borrower, the lender, and the circumstances. These lines are not carved in stone and can very from lender to lender. I?ve had a couple of investors in my third workshop, one named Pete Julian, and the other I think was John Longest both from Ohio, and both have several credit lines with different perimeters.
You the investor are the architect of your credit line; the bank is the provider and will try to keep it within their lending policies and guidelines.
If you and your bank have a good working relationship, you?ll find them to be more flexible with their policies and guidelines. That?s why I target small banks rather than large, because it?s easier to establish a relationship with a lender, were you can talk to the principles that are involved with your loan decisions.
David, a working relationship doesn?t mean that you go to the bank get your working credit line and go on your merry way. It means that you go to lunch, golfing, what ever, but spend time with your banker, to develop a relationship not just an acquaintance with your banker.
Both Julian and John, who are not associated with each other, each have one of their credit lines where the bank gives them up to a certain LTV per deal and will let them pull cash for fix up or to keep. These men have been established investors for years and have learned how to improve their lines over the years. There was no Ed Garcia to teach them when they started; it was just trial and error. This trial and error takes time and many times the borrower gets discouraged and just gives up.
There is no question that I streamline that process, but that?s because I?ve been doing this for 34 years.
David, your working credit line is yours, and has to be tailored to meet your needs. However, you may not get what you want your first time out, and may have to earn the credit line that you so desire.
In closing I decided to share with you an old post that I made a while back to someone that asked the same question. I hope that it helps you.
How to get a Working Credit Line
You don?t tell us how much experience you have in investing, which is an important factor to a bank. But the Cadillac of financing for an investor would be a Working Credit Line.
A Working Credit Line is AWSOME.
There are just so many advantages to having a working credit line.
(1) You can make CASH offers, allowing you more profit in your deal.
(2) You can CLOSE faster, making that extra deal, and more profit.
(3) You can SEASON your properties, by leaving them on your line for a while.
(4) You can use it to do FLIPS, where conventional financing is too expensive.
(5) It’s CHEAPER money, meaning you pay 1 or 2 over prime and no points
(6) You can make offers with more confidence, which is projected to the seller,
or Real-estate agent.
(7) There is NO LIMIT, as to how many deals you can do.
(8) It?s easier on your credit score because you can do multiple deals with out affecting your credit score.
And the list goes on. First to obtain a working credit line, you must have a TRACK RECORD.
This would not be a financial tool for a Newbie, the Banks would not want a Newbie,
because of the lack of a track record.
As a rule, a Business Plan is required. I usually recommend soliciting a small local Bank. The reason being, you can easily establish and build a relationship with a small Bank,
rather than just taking a number at a larger National Bank.
David, I teach people how to get a working credit line, and I can assure you that once you have one. You won’t know how you did business with out it. There’s not a whole lot of information I can give you in just one post other than to tell you that, if you think that you’re ready for a working Credit line, I suggest you contact your local community bank, who I feel would be the best candidate for you at this time.
Now let me spend a few minutes telling you about a very important tool in getting a ?Working Credit Line?, a BUSINESS PLAN
A Business Plan is extremely important for 3 reasons.
(1) For you the Investor, it allows you the investor an opportunity to lay out a game plan from beginning to end. In that game plan you can evaluate yourself and your plan. If you done your job right, you can put all the pieces of how you operate together like a puzzle. Such as choosing your title company, appraiser, contractor, tell how you plan to invest in real-estate, your experience level, how you plan to buy, market place, how you plan to market or sell them, What your plans are if they don?t sell, etc.
(2) For you to obtain other Backers (Investors), now you can show them a solid buyable plan, rather than give them some verbal mambo jumbo with holes in it. The Backer will feel more confident in you and your venture, because you have mapped it out for them.
(3) For a Working Credit Line from a Bank. This line is just like having an Investor. It?s designed to allow you to buy property making cash offers to get a better price, cheaper cost for the money, faster closes, get more deals, can season your deal, etc.
David, these are just a few reason for a Business Plan. Yes if your intentions are to just do a deal here or there, you don?t need one. If you plan to be a real-estate investor or entrepreneur, it?s PARAMOUNT, for growth and getting the real money from banks as well as romancing Investors (Backers). A good Business Plan adds CREDIBILITY to you and your real-estate venture.
David, here is an example of an out line of a Business plan that I give in my workshop.
A BUSINESS PLAN is an important tool for the Real-estate entrepreneur in order to obtain a working credit line from a Bank, as well as working with other investors or financiers.
No doubt the entrepreneur grows weary of hearing at every turn about the need for a business plan.
As a banker once told me, I don?t hear too well, but I read real good. Give me your business plan first, then we may talk. The reason for this attitude are several and sound.
First, they want facts, not hype. Most personal presentations are overloaded with hype. Bankers or Investors do not want to be sold a ?bill of goods?.
Second, they want statistical and financial data to message before meeting with the entrepreneur.
Third, they want time to do some independent investigation of both the entrepreneur and the proposed business before meeting the entrepreneur.
Finally, they want some evidence of his analytical and conceptual skills.
Prospective associates should be most interested in your plan. Exactly what do you propose to do? How do you intend to do it? Your plan not only discloses you intentions, but how well you have thought our your venture.
Unfortunately, most entrepreneur give scant thought to many aspects of their proposed Enterprise. It often becomes all too apparent in the business plan that the promoter has not done their homework, therefore is not someone with whom you could trust their information.
Even more importantly, the business plan is essential to you planning. The things you would do in writing a business plan will force you to do many essential tasks that you would likely overlook otherwise. The very act of writing a plan for your proposed business will be most informative to you. Definitely, it instills a much needed discipline to the often overly enthusiastic of the ? eager beaver investor?.
Another definition for business plan, is a ?GAME PLAN,? which in all reality we should have when doing a business venture .For this reason, most college entrepreneurial Programs are built around the writing of a business plan.
Most entrepreneurs or investors, are not familiar as to how to write a business plan.
As a result, they try to find someone to write it for them. There is much business for the person who can write good business plans. Unfortunately, much of the benefit of a business plan is lost if you have somebody else write it for you. Sitting down and pounding out the plan, section by section, forces you to do considerable thinking and evaluation of your plans… Without expectation, entrepreneurs who have written their own business plans, report that they were forced to rethink many aspects of their venture when it became apparent to them that they were some serious flaws in their thinking. The parts did not fit together properly.
Your plan is not a blueprint which you follow step-by-step in creating your empire. Instead, consider it a road map from where you are now, to where you want to go. There will be detours and lots of bad roads, but you will still find you plan helpful even if you are continually changing it as new information and new experiences are encountered.
Not surprisingly, most people first want to know what goes into a business plan. The outline below provides some ideas of what might be included in your plan, depending upon the exact nature of your proposed venture. Although I?m teaching you this plan for the purpose of a banking credit line, I felt it important for you to understand the full value of a business plan. Use common sense! What aspects are there to your new enterprise? You?ll have to plan every aspect of your business, either formally or
informally as you proceed. One way or another you must make a lot of decisions about what you are going to do in all phases of the business.
OUTLINE FOR BUSINESS PLAN
Summary?An Executive Overviewed
The Product or Service
The Marketing Plan
The Financial Plan
David, Go to http://venturea.com/business.htm there you will find some information on doing a Business Plan.
David, I hope that this post has been helpful to you and wish you well.