January 25, 2017
The start of a new year is a great time to think about what you can do to expand your real estate business. Taking stock of where your business has been--and what you'd like to achieve over the next six to 12 months--is one part of the equation. The other involves finding the financial resources necessary to transform your goals into action.
Fortunately, a term loan may be just the solution you need when an opportunity for growth comes knocking. If you're not familiar with what a term loan is or how it can help you widen your business horizons, don't panic. Here's everything you need to know.
Simply put, a term loan is a type of small business financing that features a fixed repayment term. Just like a mortgage, you'd repay a term loan over a set period of time (as little as one year and as long as 10 years).
Term loan limits usually top out at $500,000, which is more than you could borrow compared to a personal loan or a small business credit card. Another advantage of term loans is the convenience factor. If you're borrowing through an online lender, it's possible to get the money you need in as little as two business days. That's a huge plus over a traditional bank or Small Business Administration (SBA) loan, which could take weeks to fund.
Now that you know what a term loan is, let's talk about why this form of debt financing could work for you. There are five specific scenarios where a term loan could prove useful for taking your business to the next level.
1. Opening a new location
Having a steady stream of clients walking through the door is what you want as an agent but it is possible to have too much of a good thing. Eventually there comes a tipping point when your office may hit its peak capacity for handling the influx of buyers and sellers that want to work with you. When that happens, you've got two choices.
The first is referring prospective clients to other agents. The other is to expand your existing location or branch out into a new one. That's where a term loan can come in handy. If you've found a space you'd like to lease, for example, you could use a term loan to pay for the cost of renovating it, or to cover the first few months of the lease until the location is generating enough revenue to meet its expenses.
2. Purchasing inventory and equipment
Technology has become a major factor in the way real estate agents do business. If your computer system suddenly goes kaput, that could put you at a serious disadvantage until it's up and running again. If you don't want to strain your cash reserves, you could use a term loan to update your equipment so you can get back online faster.
Term loans are also ideal for purchasing inventory or supplies that you need to keep your business running smoothly and potentially unlock new growth opportunities. For example, you could use a term loan to stock up on gift items that you give to clients at closing. Those gifts could translate to referrals, which means more deals--and more revenue--for you.
3. Covering operational costs
There's a lot that goes into running a real estate business in terms of overhead expenses. Utilities, insurance, payroll and marketing can all account for a big chunk of your budget. If you find yourself coming up short temporarily, a term loan can be a source of much-needed working capital.
Think about the peak buying seasons, for example. If you want to get more clients coming your way, launching a large-scale marketing campaign could be just the thing to increase your visibility. The only problem is that if you're coming off a slow sales period, you may not have enough cash flow to fund it. A term loan would allow you to cover the gap so you're not missing out on a chance to promote your brand.
4. Refinancing existing debt
If you've already taken on some debt to grow your real estate business, taking on yet another loan might not make sense but there are two good reasons to consider it. First, refinancing into a term loan with a lower interest rate could save you money over the long haul if you're stuck with a high APR on the existing debt. Aside from that, you may be able to pay the debt down faster if more of your payment is going to the principal each month.
5. Expanding your team
When business is booming, running short-staffed can seriously hamstring your ability to keep up with your clients. Bringing new employees on-board can relieve some of the pressure but hiring and training new team members requires money. In that case, a short-term loan could be just what's needed to fill out your ranks so you can keep up with the flood of business that's coming your way.
As you can see, there are several ways to put a term loan to work for your real estate business. The question is, which lender is the right one for you? You wouldn't advise a buyer to get a loan without doing their homework first and the same goes when it's your turn to borrow. Take the time to compare loan rates and terms, as well as the lender's qualification requirements. That puts you in the strongest position possible to find the term loan that's best suited for accomplishing your business's growth goals.