Ed Garcia -- 3 questions on Working Line of Credit - Posted by Dave T

Posted by Ed Garcia on May 20, 2000 at 03:29:40:


Sometimes we can get curtain terminology confused. So far the way you have described your
current credit lines, they have nothing to do with a Working Credit Line as I know one.

You, yourself describe it as a Business Line, and a Personal credit line which to me, can be
used for any thing you fancy it to. It is definitely is not a working credit line.

Sorry to say Dave, but it’s not unusual for people to get confused when working with banks and
going in and requesting a curtain line of credit, just to have the bank offer or give you what they
have available, and try to get the borrower to accept it in lieu of their original request.

So you see Dave, the average investor would NOT know the differences of the various Credit lines.
Someone with my background would, and that’s why I try to teach it to folks such as yourself, and
others in the business. I noticed this, when I was doing my first workshop and had several
investors who would tell me, that they already had a Working Credit Line.

As I discussed this with them further, I found out that what they had was, an EQUITY LINE instead.

True definition of a Working Credit Line, is a line of credit, that the bank provides the borrower, to
purchase real-property as inventory, collateralizing the line with that inventory. Of course there
can be variations of this type of loan, and that’s why you have to be cautious when requesting such a line.

As a rule of thumb not always, the bank will request a BUSINESS PLAN, etc.

If someone plans to be successful in this business, then they should take it upon themselves to have an
understanding of a Business Plan. Many people are intimidated by just the thought of a Business Plan.
They have no idea how valuable of a work tool this is for their success. As a result they try to find

someone to write if for them. Unfortunately, much of the benefit of a Business Plan is lost if you have
somebody else write it for you. Spending time and writing it out, piece by piece forces you to do
considerable thinking and evaluation of your plan.

I could go on and on about what it takes to build or map out your real-estate career to be successful in
this business. I’ve said it before, and I’ll say it again. If you run this business off of the seat of your
pants with no rime or reason, no direction, you can still be successful in spite of your stupidity.
Can you imagine how successful you can be if you do it with a GAME PLAN ( Business Plan).

So you see Dave, for your banker to recommend for you to pledge a $100K stock portfolio against
a $50K credit line. Is not acceptable. If you are using real-estate as collateral, you would also be
able to have a higher loan amount on your line.
A 50,000 credit line would almost be useless considering the size of the
transactions you’ll be doing. 50.000 would barely allow you to buy one house depending on your location
and market place.

When you ask, What questions should I ask at my next meeting?

That would depend on your needs, and what kind, as well as, how much business you plan to do.

The idea of a working credit line is NOT to get one, and then say, gee that’s great, now I have the money
to go out and buy houses.

The idea of a working credit line is to say , Here are our goals for next year as to how much business
we plan to do, and this is the size of credit line we need in order to do it.

Dave, I’m sorry to say this post is already getting to long. So if you would like me to give you a few tips
on how to work your banker and what should be your next move, give me a call.

Ed Garcia

Ed Garcia – 3 questions on Working Line of Credit - Posted by Dave T

Posted by Dave T on May 20, 2000 at 24:57:21:

Yesterday, I talked with my local banker (independent regional bank in SC) about a working line of credit. I showed the banker the deal I was closing that day where I needed to bring $5672 to the settlement table, and I will need another $4500 in rehab money after purchase. I told the banker that I would like to explore a working line of credit for future situations like this.

The banker told me that he could give me a “business credit line” at prime plus one percent, and with a one percent annual retainer based on the approved credit limit. The first $20K could be unsecured, but at higher credit limits some collateral would be required. He even said that I could pledge a $100K stock portfolio against a $50K credit line. Apparently a 50% ratio is involved here, or, they are leaving plenty of room for market volatility, but I didn’t delve into it.

The banker told me that in his bank, a business credit line and a working line of credit are different names for the same thing.

This was just an exploratory meeting so that I could bond with the commercial side of my bank. I asked what documents I would need to open the credit line, and was told I only needed a financial statement, two years tax returns, and the articles of incorporation for the business entity under which I intend to operate. Curiously, the banker said he did not need a business plan.

Is the banker really describing a working line of credit in the context of the definition you gave at the CRE convention?

Do the rates and terms sound comparable?

What questions should I ask at my next meeting?

Thank you in advance for taking your valuable time to reply.