Finding Funding for a Real Estate Venture
Q: I recently started a small business of buying and rehabbing homes for rental to the incoming military in the area. The banking crunch has halted our purchases as of now. I am looking for funding to complete the homes already purchased. Is there help out there for this type of venture? —S.P., Fayetteville, N.C.
A: As you’ve probably already realized, this is a tough time to get funding for a new business venture. And with home prices dropping in many parts of the country, speculative real estate development is considered particularly risky these days.
While community banks are increasingly stepping in to lend to small businesses in their communities, they typically want to see a successful revenue history and plenty of collateral from entrepreneurial borrowers. Often they are looking for accounts receivables or inventory to persuade them that you will be able to pay back the money you’ve borrowed. And while in the past they might have extended you credit based on the property you already own, if you’ve taken on substantial debt in making these purchases or if the houses you’ve bought are declining in value, you’ll have a tricky time getting a traditional loan today.