Jason Hartman starts the show by answering questions from investors about self-management and property appreciation. He also talks about an app for fixing and flipping properties. Then, Jason is joined by Gerri Detweiler to share tips in navigating the business credit system. Gerri explains why shell corporations are attractive and what business credit is. They also delve into small business loans, business credit reporting agencies, and how to get started with business credit.
Announcer 0:00
This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman media.com.
Announcer 0:12
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it on now. Here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:03
Welcome to the creating wealth Show Episode Number 632 632. We’re going to talk with Gerry detweiler. Today, she has authored a fantastic book along with Garrett Sutton, who you’ve heard on the show several times. And if you joined us for our meet the masters of income property event, in January, you met Garrett Sutton and saw him speak directly to you. And they co authored a great book together about business credit about how you can buy properties with business credit, you know, just setting up an LLC and establishing credit in that LLC. And you know, there are a lot of really hokey players in that field that are just, you know, they’re just shysters. They make big promises. You know that you can get these loans with no guarantees and all this stuff. And Gerri is a really conservative lady. She has some very good insights. And when I did the interview, I was about halfway through the book, after Garrett referred me to her. I had not spoken with her yet. And I just thought this book was so detailed, and it’s, it’s great. Okay, so I think you’ll really enjoy this interview. But to help me with the intro portion, I’ve got Carrie back, because we didn’t quite finish talking on the last episode about all the stuff we wanted to talk about. And we probably won’t finish now either. So Carrie, welcome back. How are you?
Carrie 2:28
Hi, Jason.
Jason Hartman 2:29
It’s only been a couple of days since you were on the show. So you want to talk about some questions that you get from investors a lot, right?
Carrie 2:38
Yeah, I have some quite a few investors who are asking some of these questions. I’ll, I’ll shoot your way and see if you can help us all find an answer. So one of the main questions is there having the new investors are just kind of unsure about the property management and how things are going to be handled? How do they know that their property is going to be okay? Do Today for them not living physically in that city.
Jason Hartman 3:03
Well, I have news for you investors, I’m sorry to burst your hair. But even if you live in that city, you don’t know that your property is going to be okay either. Okay. I know that it gives people this false sense of security, that if they live nearby, and I’ll tell you my very first property when I was 20 years old in Huntington Beach, California on Coventry lane, that very first property was really a terrible experience and I lived locally, okay, I’ve had some bad local tenants. So living locally really doesn’t do much of anything for you. Okay, nowadays, with the tools we have recently ended that episode with we go look calm, a great tool, you know, if you need a set of eyes, in that area, you know, we teach people how to self manage properties from a distance something that years ago, I knew never would have thought was possible until I by default, did it myself and have such a great experience, I couldn’t even believe it. So self management is something we talk about. And then you know, we just teach people how to manage their managers and we help them do it. That’s what we do we exert a lot of leverage over these different team, these different members of your team that help you invest, because we give them such a large volume of business. I mean, if you have a more specific question, their concern, I’d be happy to answer it, but that’s the basics.
Carrie 4:33
Right? Well, and I think right up front, when you get your initial call with that provider, you know, if you set boundaries, okay, you know, this is your limit every month. This is how much you can spend, you know, our email, call me if you’re going to be spending this much, you know, just being on top of things like you said, it’s gonna be really valuable to you and your investment.
Jason Hartman 4:53
Carrie, I’m really glad you brought up this issue of the limits the spending limits, and just to click clarify for the listeners. What you mean by that, is that in property management agreements, and we’ve talked about this on past episodes, but it’s been a long time since I brought this issue up. So let me bring it up. Again, this is a great point, in property management agreements, your manager will have a clause in there, that they get to spend some of your rental income on a discretionary basis if a repair issue comes up. And in doing that, you know, they it makes sense, there’s a logical reason for it, you know, they may not be able to get ahold of you, and there’s something wrong with the property and something needs to be handled. And so they might put a limit in there of, you know, $200 Now, here’s the distinction. There’s is it $200 per month, or per incident, okay? Huge difference. I want you to reduce The limits that your manager ask for, okay? And I want you to give them less discretion. But the the duty you have as the investor is you’ve got to be available, you know, if they call you or email you and say, Hey, you know, there’s something wrong, we’ve got to fix it, you know, you’ve got to respond and you’ve got to make a decision. Okay. But I think in today’s world of very easy global communication, you can do this, okay, it’s pretty easy to do. So, I advise that you make it not more than $200 per month, not per incident. And I’ll tell you, some of the managers we’ve worked with over the years, they put things in there like $400 per incident. I mean, that’s just crazy. You know, and, and what this means is that they can make the decision for you at their discretion. Now, there’s a difference between this and an emergency problem and emergency defined as you know, Like a broken pipe that is leaking into the house, you have to give your manager discretion to act immediately and stop that. So there won’t be any further damage. Okay, so so that’s different than these discretionary repair items like say the garbage disposal is broken. Okay. So I just advise our investors if you’re not self managing, and by the way we we can teach you how to self manage. We’ve done this on many podcast episodes. And as part of the online Jq program, Jason Hartman University, there are a couple of our, our our member calls where we talked about self management, and they’re in there Okay, so I think you should just tighten the reins on this stuff so that you don’t have any surprises. Okay. All right. Carry make sense.
Carrie 7:50
Makes sense to me.
Jason Hartman 7:51
What’s your next question?
Carrie 7:52
Okay. Which markets are hot in which ones do you project to be hot?
Jason Hartman 7:57
Oh, gosh, what is hot mean? Well, I think it’ll be Hot Phoenix in the summer. You know, this is a really hard thing to do. And part of our basic thesis about investing is that we invest for cash flow, not for appreciation, when someone says hot market, they almost always invariably mean, what’s going to appreciate the best. Okay? So the first answer is, I don’t know. And you know what? The second answer is? Nobody knows. Okay, they really don’t. I have never met anybody, or heard of any guru who can reliably consistently predict appreciation or depreciation for that matter over time. You know, they’re all right until they’re wrong, as I always say, and, you know, one day they’re wrong, and then, you know, they fall on their sword and, you know, they’re, their career is over, they have egg on their face, okay. So, you know, I would say diversify into three good solid markets. And you can find what we believe are good solid markets at Jason hartman.com and the property section and just diversify, spread it around. But if you’re more of a, you know, there are three basic types of markets, right, the linear market, the cyclical market and the hybrid market. That is the hybrid of the two, okay? With these these different markets, I would say that, you know, a market like Chicago, and at least last year, Atlanta, became more of a hybrid market where you could really capture some more appreciation, markets like Memphis, those lean toward the cash flow spectrum much more where you’re probably not going to see the appreciation. Same with Indianapolis, but the cash flow might outpace in terms of a return on investment perspective, the appreciation, okay, so, um, you know, diversify because I don’t know the answer. answer to that question. I I really don’t. Nobody does, you know, if you want me to just make it up and predicted Oh, this is the market this is the holy grail Hey, you know, I guess I could do that but I’m not going to because I don’t know. Nobody does. Okay, I can just tell you that there’s a spectrum and on the spectrum of you know, we don’t do any cyclical markets number one, okay, so we don’t do the high flying markets like South Florida, you know, the expensive areas in the northeast New York, Boston, etc. We don’t do you know, California high flyer markets, okay. We don’t even do the Pacific Northwest type, high flyer markets. Those are too cyclical for us, but we do hybrid and linear markets. So if you want to be on the hybrid spectrum, Chicago, Atlanta, if you want to be on the linear spectrum, you know, Memphis Birmingham, okay. Maybe Orlando might have a touch of hybrid in it. Okay, Little Rock, Memphis, Birmingham. Annapolis, or Indiana or Indianapolis Sorry, it’s late. Those would be on the linear spectrum. Okay. So there you go. That’s my answer. My answer is I don’t know. And
Carrie 11:12
Then we’ll take it.
Jason Hartman 11:14
A long way to say I don’t know.
Carrie 11:17
Well, on that note, though, a lot do ask, you know, why aren’t we in Baltimore, Philly or Pennsylvania even?
Jason Hartman 11:25
Yeah, yeah. That I’ve been asked that question many times over the years. And look at there is a thriving industry of rehabbers in places like Baltimore, Baltimore, and Philadelphia and even Pennsylvania, okay, you know, these places, I just, I am just not that into them. I’m not saying we’ll never do them. But first of all, you’ve got a sort of a Northeastern vibe where you’ve got this tenant friendly mentality, and admittedly you have a bit of that in the Chicago area for sure, too. Okay, which, you know, of course, as landlords and investors, we want the regulatory environment to be friendly to our cause. Right. You know, you certainly don’t want to be investing in places like California or, you know, New York that are, you know, I mean, I’m talking New York City that are very tenant friendly, okay? But there are many, many rehabbers that are rehabbing these, you know, row home type properties in places like Philadelphia and Baltimore. I mean, there, there are many people that do that. Those are, those are big areas for that kind of stuff. They’re taking these very old row house type developments. They’re rehabbing them, they’re making money they’re marking them up and reselling them to investors for buy and hold. And we could certainly do business in those markets. But I think you’ve got you’ve got crime issues. You’ve just got stuff that I don’t know, I just don’t think they’re really that Great, you know, these are obviously part of the old Rust Belt. They’re just, they’re just very different markets. You know, Baltimore has had a lot of civil unrest issues. I think we’ve got better markets, you know, maybe there will be a day when we just don’t have any other good markets. And, you know, if it’s like, if you want to invest in real estate, here’s the best thing we’ve got. I mean, look, you know, we can only give you the best of what we can obtain. And I think we’ve done that. You know, it’s, it’s always a trade off, everything is a trade off. I mean, when I moved back to Scottsdale, every place I looked at, it was a trade off, you know, I either get this or I get that. And you know, you just, when it comes to real estate, you really can’t have it all. It’s always a process of elimination. In fact, that’s how every homebuyer and most of you listening, I know your homeowners, okay, you know, when you buy your house, or if you rent when you rented your house, you went through a process of eliminating options. You didn’t go through a process of finding the best option, your brain went through a process of elimination, I will bet you that’s exactly how you did it. And I can tell because when I was in traditional real estate for so many years, and I would sit at what they call the up desk, you know, in the in the real estate office at century 21, or REMAX, you know, I would sit there and answer the phone and, you know, you get the typical call from someone who says, Hey, I saw this ad in the paper or I saw this sign, you know, that was the newspaper era, right? This was a long time ago. And, you know, and they’d say, they, you know, they’d ask a question, and they you could just tell they were looking to eliminate it. You know, they weren’t looking for what’s right about it. They were looking to cross this option off the list, so I can go to the next one. You know, that’s how people think. When it comes to real estate, at least. So yeah, I’m just those Northeastern markets. They don’t they don’t do a lot for me. Yeah.
Carrie 14:57
Okay. And that’s funny. You brought that up, because I’m currently looking for a place to rent So, and I’m process eliminating, you know, okay, we’re this far away from the beach now. Okay, what’s $200? More? So you do you have to process it out. You don’t get it off
Jason Hartman 15:10
Carrie, you know what we had this conversation the other day? And do you mind sharing your personal information here on the show in terms of your rental? Because I just kind of guessed it, you know? Yeah, you know, your place is just a couple blocks from the beach. You live in Pismo Beach. Okay, which was a really cool area up there, you know, Central California. And I think you said it was worth like, 650,000 or something, right?
Carrie 15:38
Yeah. Each unit. It’s a condo. There’s two condos and each.
Jason Hartman 15:42
Okay, so is each one more 650? Yes. Yeah, I came pretty close to guessing your rent, didn’t I?
Carrie 15:48
You did. You did.
Jason Hartman 15:50
Yeah. That’s amazing. How much is your rent again?
Carrie 15:52
It’s around 1700.
Jason Hartman 15:54
Yeah. So you are getting a bargain. I mean, your RV ratio is Like, point two, five or something. That’s insane. That’s a great deal.
Carrie 16:05
I know. That’s why it’s so it’s hard to find a new place.
Jason Hartman 16:09
I know, but it’s still gonna be better than buying one. Because, as you well know from being an investment counselor at our company, you can buy 6.5 $100,000 houses in three diverse markets. And you can get 60 $500 a month from them. Yet you can rent a place to live for 1700 a month now maybe your new rental, you won’t get such a good deal you’ll pay 2000 or 2100. Right, right. But you’re still so much better off renting that and owning it. And you have the flexibility of being able to move and listen folks. I know a lot of you are thinking, well, Jason, you’re single but looking theoretically. But hey, folks, Carrie is married and has three dudes. Okay. So you know,
Carrie 16:56
Yeah, we love it. We love renting, you know, it gives us the option to All right, we want a new place. Let’s just give them the 30 day notice and let’s get out of here.
Jason Hartman 17:05
You know, I own so many houses, I used to always own my house when I live in Orange County, right? And I’d move around and I’d buy them and sell them. And I hated having to put my house up for sale. You know, I was mostly my own realtor, you know, I would just list my house myself. And I put it up for sale and these people would come through the house, they drive me absolutely nuts. They invade my privacy. You know, one time I put a little nanny cam in my bedroom and it was looking into the master bath. And some guy came in and like looked in my medicine cabinet and open the drawers in the bathroom. Like what the hell are you doing looking in there? You know, I saw him on the nanny cam, you know, I mean, you know, that’s just wrong. You know, I don’t want my privacy invaded like that. So you know, when you run you just give notice and you go it’s so easy.
Carrie 17:52
We do a lot of cleaning up. Get rid of stuff. Yeah,
Jason Hartman 17:55
Yeah, it does. It does make you lean down on your collecting and hoarding too. Yeah. That’s another benefit. Well, good stuff. Well, hey, we’ve got to jump to our interview. But Carrie, is there anything else on your end?
Carrie 18:07
No, I think you wrapped up a lot of it there. So thanks, Jason.
Jason Hartman 18:10
Okay, good stuff. Hey, I just want to tell all of you, I know some of you listening are not totally doing the buy and hold thing as we recommend. So if you are wanting to look at properties, and you’re more actively involved in your fixing and flipping, there’s an app for that. Okay. And in the app store in the iTunes App Store, you look up property fixer, okay. And this is a great little app that’ll help you calculate the profit for properties you intend to flip. You can email the PDF reports to you know, clients, lenders, whatever, you know, a lot of you are doing this and selling properties to clients. You can change the hold period and see how it affects your profit or your return on investment. You can compare properties in a portfolio. There’s some great tools out there nowadays. So take advantage of them. Join us on March 12, in Salt Lake City, Utah, as we do j. h you live, that’s Jason Hartman University live. We’ll do that as a one day event. So if you want to stay the weekend, on Sunday, you can get in some great skiing. I’m probably I’m arriving Wednesday to speak at a local Ria club. And I’m probably going to ski on Thursday or Friday, maybe both. I don’t know. You know, it’ll just be a great time. So come up and see us in Salt Lake City, Utah. This will be a fun time, go to Jason hartman.com. Click on the events page and register for that and Carrie, thanks for joining me. Let’s go to Gerry detweiler, and talk about buying properties with business credit.
It’s my pleasure to welcome Gerri detweiler. She has more than 20 years of experience in guiding individuals through the very confusing world of credit, especially business credit which is going to be one of the topics we will touch on today for sure. And she’s earned a reputation as is a reliable independent resource on personal and small business credit. She’s the co author of five books, including her newest title, finance your own business, get on the financing, Fast Track co authored with best selling author and corporate attorney Garrett Sutton Garrett spent on the show three or four times already over the years. You know, he’s a fantastic attorney. He’s written many of the rich dad books, his co author that we’re interviewing today, Gerri serves as the head of market education for nav, which provides business owners with simple tools to build business credit, and access lending options based on their credit scores and needs. And this is gonna be a really good interview today. So thank you for joining us. And Gerri, thank you for joining us. Tell us what’s going on in the world of business credit. There are a lot of people out here who make a lot of promises in this area, and they don’t deliver a lot of times do you find that to be true?
Gerri Detweiler 20:52
Yeah, well, absolutely. And you know, I come from a very practical background. I’m from the Midwest.
Gerri Detweiler 21:00
I’m trying to tell it like it is. And I’ve been around this field for so long. I think what’s really interesting, Jason is, I do feel like we are sort of at just the beginning of a curve of something big in the business credit space. And I say that because this is Chris has been so much of a mystery for business owners that it’s allowed people to charge sometimes really outrageous fees to business owners who don’t know any better. And Garrett gives a great example. He had a client come to him who had paid $85,000 for a shelf corporation that supposedly had about $250,000 in credit available. What’s so this idea was, well, I’ll pay the $85,000. But then I have $250,000 of credit, I can go do what I want. And it didn’t turn out that way at all. In fact, he didn’t get the credit lines that were promised and he lost a lot of money. So what’s happening now
Jason Hartman 21:53
Let me let me just explain that to the audience. A shelf Corporation i what i believe you’re referring to is a corporate That someone formed, and they let it sit on the shelf, didn’t use it. And then the promoter said, Well, this corporation, I’ll sell it to you, it’s basically unused, but it has credit lines. And so you know, pay me a huge premium, you know, my costs 99 bucks to $800, maybe to make to, to form that Corporation, usually for a new one. But this one’s aged. Right. And so it has benefits of being aged. And one of those benefits is credit lines. And those credit lines, we’re just not really there. Right?
Gerri Detweiler 22:33
Yeah, exactly. And sometimes there are credit, they have established some credit lines, and so those are available, but usually, it’s not just cash credit lines, you know, it might be pieced together that there may be they had established, you know, a fuel card with a credit line and then another one with a Home Depot or for another part of it. It’s not usually just a big open line of credit to use for whatever you want. And that’s I think what people Think when they’re buying this. I’m not saying there’s never an instance where you don’t buy a shelf Corporation. But you have to be very careful if there’s promises that sound too good to be true. And also, once that transfers over sometimes if the lender catches wind of it, they may shut down the credit line that’s associated with that Corporation. And so you may have to start all over again. But the the reason why these are attractive is the word you mentioned, which is aged. And that’s because in the, in the business world, we know that there’s a high failure rate for small businesses. And so the longer your business has been around, you get some credit, so to speak for the age of the corporation, just because they know that if you’ve made it past that two or five year mark, you have a better chance of succeeding than say one that’s just six months old.
Jason Hartman 23:46
Well, Gerri, we will, we will sell no wine before it’s time. As the saying goes. This is like, this is like, single malt Scotch, you know, it’s right there. Yeah, yeah, exactly. And And these corporations, these promoters seller, probably aged in oak barrel. Okay, so so listeners I just, you know, look a lot of our listener base throughout 164 countries worldwide, they’re really interested in real estate investing. So you might be thinking, you know, why are you talking about business credit, I don’t have my own business. But you know a lot of you have or will create an entity like an LLC, just to hold real estate, maybe you’ll do that inside a self directed retirement plan. These are eligible to get business credit that will allow you to do things like buy more property, do more investments, spend money for capital improvements on properties, hire people to manage your real estate portfolio, so I just don’t want now many listeners also own businesses too. But I want to speak to the people who don’t think of themselves as business owners, even though technically if they have an entity, they are a business owner. Okay. You have a rental property or real estate investment business, you know, even if you think well, I don’t have an office, and I don’t need to buy a copy machine or you know, delivery van for my business, that’s not what this is about, okay? Or it could be about that. But that’s not really why we’re talking about it, we’re talking about it, because it you know, it can be an appealing thing for real estate investors.
Gerri Detweiler 25:21
Yeah. And let me give you a specific example Jason of how this would work. So you have this LLC and you are going to rehab a property and you know, I had rental properties, we’ve been through the whole rehab part, and you have a choice. You know, when if you don’t have the funds available to you immediately. A lot of times what you do is you take your credit card and you go to Home Depot or Lowe’s or wherever you’re going to go and you buy what you need. And then you put that into the property and then hopefully when you sell it, you can pay that off. Now if you were to use your LLC to get that credit card through one of these, you know, stores and you keep it Do you keep that debt off your personal credit, that helps your credit score because about a third of a credit score, at least I’m for all US, those of us who are based in the US about a third of your credit score is the debt you carry. And a big portion there is what you’re carrying on your credit cards. So if you right now are used to turning to your personal credit cards, to fund you know, whatever you’re doing for your real estate business, you may be hurting your credit scores. And then you know, when you go to the next property, if if your personal credit scores are reviewed, then that affects the interest rate you get for the next loan, and so on and so on. So the things that you’re buying for your business, you can put them into business credit, and the better your business credit score that you build, the more you can, you can get credit based in the name of the business and eventually you can get it without personal guarantees. So that won’t happen immediately. But as you build business credit, you can actually do it without personal guarantees. And I’m sure when Garrett’s been on the show, he’s talked all about asset protection and Protecting your personal assets. And that’s ideal for anyone in business, including real estate investors.
Jason Hartman 27:05
Okay, so here’s a distinction that I want our listeners to make. A lot of business credit promoters will be out there saying one of the great things about business credit is you can you can borrow, and usually they say it’s like $250,000, you know, up to that amount, right for each entity. So this is pretty significant, potentially. Right. And one of the great things about it, they’ll say, and I’m gonna take issue with this, it’s counterintuitive. It’s probably counter to what you’re thinking too. So feel free to argue with me. But one of the great things about it is it doesn’t show up on your personal credit report, unless you default now then it will. But I say that that’s not necessarily a benefit. It sort of isn’t it isn’t it’s a two edged sword because if you want to enhance your personal credit, you know, it’s good that things show up on your credit report is long as you’re in shows that you can carry a lot of debt and pay it back. And that that I believe enhances your credit score. But you know, if you don’t pay it back of course that’s not good. But But you know, sometimes you actually want it to be on your personal credit report because it will enhance your credit, right?
Gerri Detweiler 28:17
It depends, you know, I really caution about the revolving accounts like credit cards or lines of credit because their FICO tells us and fica is the main, the main calculator for credit scores in the US Vantage score is the second most common and both of them take this factor into account. They look at your credit line compared to your balance on each revolving account, and then all of them all together. And the best scores go to consumers who use 10% or less of their available credit. Because with FICO scores and these scores, what they’re doing is they’re comparing everyone in the country and honestly, Jason, most people in the country aren’t Going out and investing in real estate and they aren’t doing the kinds of things that your listeners are. And they’re rather conservative, they might use their credit card a little bit, but they’re and so when you get out of the normal parameters of the normal patterns, sometimes you can be penalized. So it’s not that you can never use a personal credit card for your business. But if you’re going to be carrying a high balance, and I mean even 30 to 50% of the available credit, you’re better off using a business credit card where it doesn’t show up on your personal credit protecting your personal credit score those most of those business credit cards, however, are reported to the Small Business financial exchange, which is a business credit agency, so it will show up there, but as long as you pay on time, you should you should do okay with those.
Jason Hartman 29:49
Okay, so this business credit thing has always been a mystery to me. And it’s a mystery to most people, I believe. I mean, you know, we all have no on our personal Credit Report. There’s, you know, Experian, Equifax, what’s the other one that just escapes me at the moment? TransUnion TransUnion. Thank you. I didn’t know that. It certainly heard it and said it a million times. You know? I mean, how do you manage your business credit report?
Gerri Detweiler 30:18
Well, that’s a great question. And first of all, the reason that Garrett and I wrote this book was exactly because the same confusion that he had heard from his clients, I met Garrett about eight or nine years ago, and he knew my expertise and credit, we really delved into this business credit, and it’s evolved a lot during the last, you know, last few years, even three or four years. So, here’s the challenge. business credit reports are very different from personal credit reports. There’s no law that says you have to be able to see it once a year for free. There’s no law that if there’s a mistake, they have to investigate and get back to you in 30 days, there’s no law that says if they turn you down because of your credit report that they didn’t have to tell you that so a lot of people don’t even know Why they returned down for business small business loans. I in addition to writing the book financed your own business with Garrett, I also work full time at a company called nav nav.com. And we’re the first company to show business owners their business credit rating for free. So they can come and get two free business credit ratings from us and find out where they stand and then hopefully monitor and build stronger business credit and we’ll match them to lenders that will, you know, that meet that are looking for borrowers with a profile similar to theirs. And then we also have enhanced services. If you need more a deeper dive into your report or maybe if you’re going for an SBA loan, we have a service that shows you the FICO a FICO score that’s used specifically in for small business loans.
Jason Hartman 31:47
Talk about how we do this, how do we get this business credit, especially speaking, if you would, Gerri to real estate investors, for example, you know, these aren’t they’re not running a business as Most people think of it, you know, maybe they they set up an LLC, you know, they heard Garrett on the show, they set up an LLC, and they want to buy properties inside of that LLC. What do they do to get business credit going
Gerri Detweiler 32:15
The process is very similar to that a personal credit it’s basically get credit in the name of the business, make sure it reports to the credit bureaus pay it on time and keep your debt low and you build good credit you know, it’s a similar process, but where it’s more confusing is these bureaus are very different. So you the main credit bureaus for small business credit are Experian, they have a small business division, Dun and Bradstreet or dnb, which you might have heard of their paydex score. And then there’s the Small Business financial exchange, which says it’s not a credit bureau, but it basically collects information from lenders and then lets the member lenders use that information for decision purposes. So it’s, for all intents and purposes very similar to a credit bureau and not everybody reports to all three So you do need to get accounts with companies that report and a lot of times the way to start is very simple. So if you start with that, you know with that credit card at your local staples or Office Depot, you get a fuel card and the name of the business you get a business credit card, small business credit card that will the small business credit card will require a decent personal credit score to obtain but then most of them do not report unless again you default so you’re building your business credit that way and really with with dnb you need for accounts that are reporting to d&b to develop your paydex score so with four accounts, you just pay them on time.
Jason Hartman 33:44
So Dun and Bradstreet. Dun and Bradstreet is one of the credit reporting agencies and and pay pay dex?
Gerri Detweiler 33:52
P A Y D E X is their main score. And
Jason Hartman 33:56
so is that is that analogous to FICO score on the personal side?
Gerri Detweiler 34:00
It is. It is it’s very similar. It’s it’s their version, although the top score is 100. And with a FICO score your top scores 850. So these run on a very different scales and your personal credit, but they look at the same types of things, you know, payment history and debt. They also look at things like how long you’ve been in business, what industry you’re in. So if you’re in a risky industry, then you it’s harder to earn a top score. And what’s interesting with real estate, as you know, least a few years ago, very, very tough in that area, but Garrett had some clients who they also set up an LLC to do property management or to do the marketing for their properties. And those you know, those entities because they were not buying and selling real estate, were able to establish higher score a little bit more quickly, just because that industry wasn’t considered as high risk now. It’s definitely improved since the since 2008. But, but that is one thing to keep in mind. And if you have multiple entities, each entity can establish its own business credit. It’s not, it’s not a one shot thing associated with you.
Jason Hartman 35:16
So, what else do we need to know about getting this business credit going? You know, we form this entity, how long does it take? You know, who can help us do it? Do we really have to, like become experts in all of this to do it? I mean, you know, there’s just so much to know, you know, every The world is so complicated nowadays. There’s a lot out there. But, you know, can we just hire someone to take care of this for us?
Gerri Detweiler 35:43
Well, I hope you don’t mind I’d say first read our book.
Jason Hartman 35:48
Or listen to it on audible.
Gerri Detweiler 35:50
The format is on audio and in printed form and comment on Kindle soon. And just because,
Jason Hartman 35:57
and I and by the way, I should say to the listeners, I’m about halfway. went through it myself. And I have learned a ton of things I did not know. I mean you know this it’s like I said it’s kind of a mysterious world of this.
Gerri Detweiler 36:09
Yeah. And once you once you get the basics you’re gonna find it’s just very similar. It’s just for not familiar with it. You know, we’re not familiar with these names, the terminology. Interesting little twist with your paydex score, the dnb score that I mentioned earlier in Bradstreet, Dun and Bradstreet. Yes, that that particular score, you get the highest score goes to those who pay early. With your personal credit, you don’t get any extra credit for paying early right you either paid within the 30 days that it was due or you didn’t see right it’s that’s one or the other. But with these scores, they actually look at something called days beyond terms so they look Did you pay five days after the invoice was due at that so that’s five days beyond term Did you pay 20 days after the invoice was due and based on that if you pay early You can actually get a higher score by paying early so you don’t have to you really you can, you can be pretty conservative. If you’re someone who’s very careful and concerned and conservative about debt, which is understandable, then you can still be conservative, you can still pay your bills on time, you can pay them off in full, you don’t have to pay interest. But you do have to have some accounts that are reporting to these credit bureaus in order to be able to establish credit references and establish a business credit rating.
Jason Hartman 37:27
So look at I have several businesses and I’ve been in business for a long time. And, you know, we have vendors and customers and you know, people owe us money and we owe people money. Well, I’ve never reported in any of my businesses, how fast or slowly someone pays me and God, there’s a lot of people that owe some money and haven’t paid Mm hmm. You know, who who reports this stuff? Like I mean, no one’s ever asked me to report anyone else that owes me money.
Gerri Detweiler 37:54
Yeah, well, it’s hard for individuals.
Jason Hartman 37:56
And when I say me, I mean my companies.
Gerri Detweiler 37:58
Right. And it is a little bit it’s, it’s jumping through hoops for individuals to get set up to report. But, but absolutely, you know, you get an equipment lease you, it could be even an auto lease that you get in the name of the business, you know, commercial auto lease that could be reported. Any business credit card is going to report a lot of these smaller cards like your fuel cards and your your certain retailers that cater to small business. But then also in dnb. A lot of these are businesses that just traditionally have reported. So you may find a printer that you use that is that will report you may find that when you buy something on terms, it might be some of your supplies for your rehab, that one that vendor may report. So it’s even possible, Jason that you have a business credit rating for some of your businesses that you just don’t know about because how would you know unless you checked it? You wouldn’t know right?
Jason Hartman 38:56
I know but I can’t believe I can’t believe the little printer that I use you Around the corner is actually reporting like they have a that’s a whole job for them to manage all of that.
Gerri Detweiler 39:06
Well, it may not be a little printer around the corner, but if it’s a bigger printer it very well may. So if you have a bigger commercial printer, they very well may report, yes. Yeah. Interesting. Yeah, it’s this whole ecosystem that we just unless until you deal with it, you don’t know about it.
Jason Hartman 39:19
Yeah. Okay. What else do we need to know about establishing this credit? I mean, like, you know, in terms of getting someone to do it for us, I think a lot of people are having that question. Because, you know, many, many people, maybe like myself, kind of go, oh, gosh, you know, throw up your hands. This is so complex. Can I just get someone to handle it?
Gerri Detweiler 39:37
You could, and you certainly can. And if that’s your choice, I hold nothing against you. I think there’s a lot I think with the tools that we have now available. There’s a lot you can do on your own and literally, you spend a half an hour, you go into the Nam site, get your credit rating, and then you find some lenders that report and you apply and get those cards and you start using them when we were talking 30 minutes to get started. So I’d encourage you to at least be aware on your own of what you’re doing, rather than just turning it over to someone. But if you do want to turn it over to someone, Garrett and I would be happy to recommend, you know, some reliable sources who can help you get started with a business credit? I am not, we’re not going to promise you $250,000 in credit overnight or anything like that. I just think that for most businesses, that’s probably not tremendously realistic. Not that it doesn’t happen. It certainly does. But I think you know, you treat this like, like everything else, you know, in your business where Yeah, it’s it’s really a pain to have to keep up with my annual corporate filings for my S Corp. I would rather not have to do annual meetings and resolutions and all that stuff. But you know what? It comes with the territory, I get the benefits of the business and so I’m going to keep up with this thing. And I think I think business credit is along the same lines.
Jason Hartman 41:02
Yeah. Okay. All right. You know, I don’t exactly know what I should be asking. So just tell us more. I mean, what do people need to know about this?
Gerri Detweiler 41:12
Yeah, well, I would say another thing that you want to keep in mind is that business credit transitioning to business credit as a process from transit, transitioning from personal credit, and I’ve had over 20 years working in personal credit, I testified in front of Congress when they were updating some of the credit laws. I’m very, very familiar with what’s going on on the on the personal credit side, too, and you can’t abandon that because it’s still very important and it still plays a key role for many business owners, including real estate investors. And so so you really want to stay on top of it. And again, there’s so many good free tools. Now you may get your credit score through your credit card company, their sites, you know, NAB gives a personal credit score. You have credit, calm and Credit Karma and all these other sites. You sign up As you start checking the app, you pay attention to your personal credit score. And that’s really important too, especially again, if you’re, if you’re in that process where you need to make a major expenditure, and you need to put it on a card, get the funding quickly and then move on, then that is, you know, that’s certainly something you want to pay attention to. The other thing that’s, I think, is getting really, really interesting. Jason is the whole crowdfunding space.
Jason Hartman 42:26
Yeah, I was gonna ask you about that. And it’s interesting that you have a chapter on this in your book, too, which is exciting. It’s sort of odd, though, that that would even come into this conversation. I’m surprised it’s in the book, although I like it.
Gerri Detweiler 42:38
Well, it is because it’s, what I’m seeing is this. There’s this interesting blend. First of all, crowdfunding comes in different forms. So you have the reward base, like, you know, a musician will have their CDs and give you their CD if they raise enough money to produce the CD, or a T shirt or whatever the product may be. But the new one that we have coming out this year is equity crowdfunding and that’s where someone’s You know, where you can get investors in your business so you can actually solicit investors equity investors, and previously the SEC has been very strict about if you want to raise money that way, you need to go to accredited investors, wealthy individuals, you can never. Yeah, it’s a very, very closed system really, really kind of shut out a lot of other people.
Jason Hartman 43:24
Well, this all changed because of the JOBS Act, which is one of the one of the one of the four good things Obama has done during his presidency. But But yeah, so tell tell us what what this means now on the equity side of crowdfunding,
Gerri Detweiler 43:37
Right. So what equity crowdfunding is going to allow is going to allow you to go if you had a business so let’s say I just heard from someone who has this really cool real estate app, and she’s going to crowdfund it so she could either offer rewards, or she could go to one of these internet portals. And this is a true story because I just heard from her last week, and she could go to one of these portals and she could advertise Her offering and try to get investors you know, people who would become shareholders as opposed to just getting a reward in the company. And this is this is actually happening in q2 of this year 2016. So it’s right around the corner. But here, here’s where it gets interesting for business owners. What I’m seeing is this whole, we’re starting to see this blend of companies that are doing sort of a blend of credit and crowdsourcing. So you have some lenders like Kiva Zip has zero percent loans, they’re small loans. So most real estate investors probably wouldn’t be using this unless maybe they were doing some kind of community project.
Jason Hartman 44:41
I’m a Kiva lender. I love it. I just simply do it for a good cause. And, interestingly, according to Kiva, if they’re telling the truth, but you know, I just want to make that disclaimer. Their loan repayment rate is like 98.4%. So I just figured that’s better than putting my money in the stock market. I can actually do some good
Gerri Detweiler 45:01
Yeah. I do too. For small businesses, I want to put my money where my mouth isn’t supporting the small business. But you know, like Kiva Zip, and there’s some other platforms like this, they actually make you start and raise money first from your community and your network. And then once you’ve raised a little bit of money, it’s not always a lot. But once you’ve shown that community support, then the lenders come in and you can fully fund alone now Kiva they’re getting lenders from all over like you and me who are you know, supporting the platform but there’s other lenders where there might be institutional money. So what the see here’s what this means for small business owners and I don’t care whether it was real estate or anything else. I think your reputation is becoming so crucial and it’s it’s gonna affect you in so many more ways than we’ve ever realized. You know, someone in personal credit, they can’t use your Facebook comments or your friends or anything for personal credit, it’s to regulated with business credit they can so they look at they can look at things like your Yelp ratings or your Facebook network or your LinkedIn network, or your tweets, you know, all that stuff. So it’s really, if you think you were overwhelmed just thinking about business credit. Now you’ve got this old reputation to maintain. But I really that’s that’s the direction. We’re moving right now in the small business lending arena.
Jason Hartman 46:19
Yeah, interesting. Very interesting. So you’re saying, I mean, employers have been doing this, you know, looking at social media and stuff. And there are some laws state by state, I know that California has made some restrictions on them doing that. So you know, those drunk and FACEBOOK PHOTOS, you can’t be used against you in hiring process and so forth. You know, it’s good that people’s reputations, follow them around. I mean, I think that’s kind of the way it should be. Right?
Gerri Detweiler 46:44
Well, it’s, you know, it’s it goes back to the very early days of landing where it was your character, right. You knew the banker, everybody in town knew you and they knew whether you were likely to repay, but we moved away with all this data now. Yeah, the data is sort of coming back in a new way to vouch for your character, and the likelihood that you are to repay. But it’s also cool because those who might not have strong personal credit may have other options that keep us zip opportunity that we just talked about, they don’t look at a credit score. That’s not even a factor. So if you’ve messed up and you’re starting over, there are options out there that may overlook a personal bad personal credit score provided you either have business credit or you have a community willing to support you as you get back on your feet.
Jason Hartman 47:33
Okay, okay, good stuff, give out your website, tell people, you know, the books on Amazon, Audible, etc. What is your website, Gerri?
Gerri Detweiler 47:41
Yeah, so the book is available at corporate direct, corporate direct COMM And there’s a business credit tab right there on the top and we also have a free report on the stages of business credit that you can download for free there. And then if you want to check your business credit scores, you’ll see a link right on that business credit page on corporate direct or you can go directly to nav nav calm and get your free business credit scores and get started establishing credit and, you know, Garrett and I love to love to help. So certainly questions could be fodder for a new article or something else that we can we can help with. So I encourage you to reach out to us corporate direct site.
Jason Hartman 48:23
Fantastic. Gerri Detweiler, thank you so much for joining us and talking to us about this, this little known area that’s becoming more and more important, and there are some good opportunities here. So it’s good to know more about it.
Gerri Detweiler 48:34
My pleasure.
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