Can You Buy a House with Business Loan?

Have you ever glanced at a property listing and thought, “Could my business credit help me buy a house?” It’s a reasonable question, especially if you’ve poured years of effort into establishing a strong commercial presence. Perhaps you’ve built up business credit lines, maintained loyal client relationships, and now you’re wondering if that same diligence could get you the keys to a new home.

I’m from Eboost Partners, and I’ve seen this question pop up all the time – often from dedicated entrepreneurs trying to bridge the gap between business financing and personal dreams. It’s not an everyday topic, but it’s definitely gaining traction. People ask me: is it possible, is it risky, is it worth it?

Let’s talk about it. I’ll share my take on how business credit can play a role in real estate deals, what pitfalls you might face, and how you could structure financing. I’ll also shine a light on certain solutions – some straightforward, others more creative – that could help you navigate this journey.

So, buckle up. Because honestly, buying a house with business credit isn’t just about the numbers. It’s also about strategy, flexibility, and a clear sense of where you stand. Let’s unpack the nuances.

Business Credit in Real Estate

Business credit can be a powerful resource for entrepreneurs, but it can also create confusion. You might hear rumors that “it’s easier to finance real estate through a business” or “business credit is a hack for home buying.” Yet the truth is more layered than that.

Understanding Business vs. Personal Credit

Typically, personal credit refers to your individual borrowing history, scored by organizations like FICO. Business credit revolves around your company’s financial track record – how well it pays vendors, suppliers, and lenders. While these two types of credit often remain separate, they can intersect if you leverage business credit for personal assets, such as a residential property.

Real Estate: Residential vs. Commercial

If your company is buying commercial real estate – for instance, an office or warehouse – business credit is an obvious avenue. But you might be considering a house that’s part office, part living space, or purely personal but titled under your business name. Lenders will examine that dynamic pretty carefully.

Why the Confusion?

Most folks get mixed up because they assume a business entity can simply purchase a home without the usual personal credit checks. In practice, your personal finances might still come under scrutiny, especially if your business is small or doesn’t have a substantial credit history.

Still, there is a kernel of truth: well-established companies can sometimes secure real estate loans under the business umbrella, making your personal credit less of a factor. It hinges on how strong your business’s credit and revenue streams are.

Feeling a bit unsure? Let me clarify further.

How To Use Business Credit To Buy a House

You might wonder if there’s a single magic formula. But in finance, reality is rarely that simple. Different loan products carry varying requirements, interest rates, and terms. Yet each option can potentially serve your goal of using your business credit to acquire residential property. Let’s run through some popular choices:

Traditional Bank Loans

When folks ask, “How does a small business loan work if I’m eyeing a house?” they’re usually referencing traditional banks. Banks are the classic route. They offer business loans that can be used for purchasing property. Here’s the catch: banks often require substantial collateral and may ask the business owner for a personal guarantee.

If your enterprise has a solid history – let’s say it’s been around for a few years, has steady revenue, and an impressive business credit score – this might be feasible. Bear in mind, though, that the qualification process could be long and thorough. Expect plenty of documentation, from profit-and-loss statements to your business tax returns.

More on Traditional Bank Loans

• Interest Rates: Generally competitive, but can vary based on market conditions and your company’s risk profile.
• Loan-to-Value Ratios: Banks might lend a certain percentage of the property’s value; the rest becomes a down payment.
• Timeline: Approval might take weeks, or even months.

Willing to wait but want a stable partner? A bank loan could be your best bet.

SBA (Small Business Administration) Loans

Have you heard of the Small Business Administration? They don’t directly give out money, but they do guarantee portions of loans provided by approved lenders. Now, you might wonder, “Will SBA loan affect mortgage approval on my personal side?” Possibly, because these loans can appear on your credit if there is a personal guarantee. However, if properly structured, an SBA loan can be used for real estate that the company will occupy.

Common SBA Loan Types

• 7(a) Loan Program: Often used for real estate, working capital, and more.
• CDC/504 Loan Program: Centered on real estate or major equipment purchases.

One tip: the real estate purchased must be at least 51% owner-occupied if you’re using these funds for your business premises. That means if you’re aiming to live in the home personally, it may not fit SBA guidelines unless it doubles as your company’s base of operations. Still, for certain scenarios – like a multi-use property – SBA loans could be a legitimate path.

Related Resource: What is a business loan – A quick overview of business loans, including SBA ones, and how they function.

Online/Alternative Lenders

Speed is the name of the game with online lenders. They can provide business loans much faster than banks. If you’re well-prepared with documents (and your business financials are strong), you might get approved in days.

However, convenience often comes at a cost. The interest rates might be higher than traditional banks, and the terms could be shorter. That’s not always a deal-breaker – if you plan to refinance later or if you simply value quick access to funds.

These alternative channels might also be more lenient when it comes to credit scores. It doesn’t mean they don’t care about risk; they do. But many weigh factors like your business’s monthly revenue and cash flow more than a typical bank would.

Equipment Financing

You might say, “Equipment financing for a house? That makes no sense.” You’re partly correct – equipment loans are for gear, machinery, or other tangible items essential to your business operations. It’s not the go-to approach for property purchases. That said, if you’re mixing property improvements or specific installations (like heavy-duty renovations for a home office) into the financing, some lenders could wrap those costs under an equipment loan.

Still, it’s a stretch. Most folks rarely use equipment financing for a residential purchase. But in a scenario where the property is functioning as a specialized facility for the business – maybe a recording studio or a unique production space – equipment financing might factor in.

Business Lines of Credit

A line of credit is different from a standard loan. Think of it as a flexible borrowing limit you can draw from whenever you need. If your business has a substantial line of credit and you’d like to funnel some of those funds into real estate, you might do that.

But be mindful: lines of credit usually have variable interest rates and can be recalled or reduced if the lender’s risk tolerance changes. If you’re leaning on a line of credit for a down payment or a chunk of the purchase price, make sure your plan accounts for these potential fluctuations.

You might ask, “Should I get a small business loan or a line of credit?” We tackle that question in another piece.

Merchant Cash Advances

Merchant cash advances (MCAs) are popular in industries with consistent credit card sales – think retail or dining. An MCA advances you a sum based on your future sales, which you repay plus fees, typically through daily or weekly deductions from those sales.

Using an MCA to buy a house is a hefty proposition. These products are short term, often expensive, and can strain your cash flow. That being said, if you have a plan, strong margins, and see a quick path to refinance or pay off the advance, it might be an option. But weigh the risk. Most folks don’t consider MCAs ideal for real estate – especially not for a personal residence.

Invoice Financing/Factoring

If your business deals with invoices that get paid on a net-30 or net-60 schedule, invoice factoring might free up capital. You effectively sell your unpaid invoices to a factoring company at a discount. You get cash now; they collect from your clients later.

While this solution can address short-term cash-flow hiccups, it’s typically not the top choice for a major real estate deal. Still, if your company needs extra capital to top off a down payment, invoice factoring could provide that last piece of the puzzle. Just be sure you’re comfortable with the discount you’ll pay to the factoring company.

See More: How to get a small business loan.

Risks of Buying a House with Business Credit

Before you get too enthusiastic, let’s talk about hazards. Remember that story about the old carnival game: you might win a giant stuffed bear, but you have to throw a ball through a small hoop, and if you miss, you lose your money. In finance, that stuffed bear can be the property, and the risk is losing a chunk of your capital or, worse, your entire investment.

1. Personal Guarantees
   Many lenders still want a personal guarantee from the business owner. If your company defaults, you might be personally responsible. That risk can be high, especially if your household finances are tied to the same pot of money.
2. Higher Interest Rates
   If your business is new, or if it’s considered higher risk, lenders could charge more. That extra interest might make your monthly payments less affordable than you’d like.
3. Property Use Restrictions
   Depending on the loan, you might have to prove the house is for business activities – like a bed-and-breakfast or a guesthouse you rent to clients. That can limit how (and if) you can live there personally.
4. Complicated Paperwork
   Blending personal use with business credit leads to extra documentation. Lenders, insurance companies, and tax authorities will likely have many questions.
5. Impact on Credit
   If the business struggles with loan repayments, your personal credit could be at risk. Conversely, if you’re not vigilant, your personal finances could negatively impact your company’s credit standing.

Financing a property through your business is not an easy path. It demands thoughtful planning, contingency reserves, and clear communication with your lender, accountant, and maybe even your real estate agent.

Benefits of Buying Property With Business Credit

On the bright side, buying real estate under your business can be appealing for certain entrepreneurs.

• Asset Separation: The property might be held by your company instead of you personally. That can help keep personal and business finances separate, which may offer liability protection in certain cases.
• Potential Tax Advantages: When structured correctly (and with professional guidance), you might deduct some of the property costs as a business expense.
• Business Credit Growth: A successfully managed real estate loan can further strengthen your company’s credit profile. It’s like a stepping stone for future financing.
• Opportunity for Mixed-Use: If the property is used partly as a workspace, you can possibly share costs between personal and business use.
• Control: Owning property through your company could allow you more freedom in how you operate the space – like subleasing or remodeling – compared to typical landlord-tenant situations.

Still, these perks come with fine print. It’s wise to consult a financial advisor or a trusted accountant for specifics.

Quick Look: Pros \ Cons of Buying a House with Business Credit

Below is a snapshot of what we’ve discussed. Keep in mind, every situation is unique.

PROS	CONS
Separates personal and business liabilities	May still require personal guarantee
Can help build stronger business credit	Higher interest rates possible for newer businesses
Potential tax benefits if used for business purposes	Complicated paperwork and legal considerations
Flexible financing options beyond personal mortgages	Might have restrictions on property usage
Access to various loan products tailored to businesses	Personal credit could be affected if the loan defaults

See all the benefits of a business loan.

Ready for Your Next Move?

Buying a house under your business’s name is a major endeavor. I’ve walked many clients through the details here at Eboost Partners, and I’d be happy to do the same for you. Sure, it can be tricky – factors like personal guarantees, property use, and higher rates aren’t minor footnotes. But if you’ve got the right game plan, you could create a smart and potentially profitable situation for both your business and your personal life.

Yet you might still be asking yourself:

• “Should I gamble my personal credit on this?”
• “How long should I finance the property? What’s the average business loan term that fits real estate?”
• “What if I have a not-so-stellar credit score? Are there Business Loans for Bad Credit that might help?”

These questions matter. So let me say this: if you’re thinking of using business credit to buy a house, talk to folks who’ve done it, gather your documents, and speak with a lending professional. And if you need deeper insights, we at Eboost Partners can serve as a supportive voice. Our team understands the complexities of combining personal ambitions with corporate finances. We can walk you through business loan eligibility, discuss various types of bank loans for business, or explore loans to buy a business if you’re shifting your focus.

Are you ready for a conversation about how business credit can fuel your real estate goals? Or do you need a reality check to see if business financing is even a valid route? Either way, let’s connect. At Eboost Partners, we don’t just hand out a pamphlet and say, “Good luck!” We discuss your aspirations, real numbers, and game plan. Then we work closely with you to craft a financing approach that suits your unique situation.

Reach out to us today for a friendly chat. We can talk about your vision, throw around some possibilities, and figure out if a business-based property purchase makes sense for you. Because, you know what? Sometimes that big dream isn’t so far-fetched – it just needs the right financing plan to become real.