AIPIS 121 – Gerri Detweiler – Buy Real Estate or Anything with Business Credit

This show is produced by the Hartman Media Company.

For more information and links to all.

Our great podcasts, visit hartmanmedia.com. Welcome to the AIPIS show for accredited income property investment specialists and those who aspire to be if you're a real estate, mortgage or financial professional, this is the place for you. We'll explore innovative investment analysis, sales, marketing and income generating strategies for the most historically proven wealth creator income property. Learn from the experts as they show you how to build a better business and a better life.

Welcome to the AIPIS show for accredited income property investment specialists and those who desire to be this is your host, Jason Hartman where we talk about increasing your income, your productivity and just generally having a better life while serving your clients better with America's most historically proven asset class income property. We have a great interview for you today and we will be back with that in less than 60 seconds. It's my pleasure to welcome Jeri Detwiler. 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 a reliable independent resource on personal and small business credit. She's the co author of five books including her newest title, Finance youe Own Business, get on the Financing Fast Track, co authored with best selling author and corporate attorney Garrett Sutton. Garrett's been 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, Jerry 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 going to be a really good interview today. So thank you for joining us. And Jerry, 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?

Yeah, well, absolutely. And you know, I come from a very practical background. I'm from the Midwest, so 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 business credit 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 to him. So his 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 had lost a lot of money. So what's happening now?

So let me just explain that to the audience. A shelf corporation, what I believe you're referring to is a cor. Informed. 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, it might cost 99 bucks to $800 maybe to make 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 were not really there, right?

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 maybe they had established, you know, a fuel card with a credit line and then another one with a, I don't know, 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'. 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 transfer is 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 reason why these are attractive is the word you mentioned, which is aged. And that's because 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.

Well, Jerry, 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 aged. Right.

There you go.

Yeah, exactly. And, and these corporations, these promoters sell are probably aged in an oak barrel to make them even better. Okay, so, so listener 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 a 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, a delivery van for my business, that's not what this is about. Okay, it could be about that, but that's not really why we're talking about it. We're talking about it because it can be an appealing thing for real estate investors.

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 I had rental properties. We've been through the whole rehab part. And you have a choice. 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 gonna 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 stores and you keep that debt off your personal credit, that helps your credit score, because about a third of a credit score, at least 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 get the next property, 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 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.

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 borrow. And usually they say it's like $250,000, you know, up to that amount. Right. For each entity you have. So this is pretty significant potentially. Right? And one of the great things about it, they'll say, and I'm going to 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 is and 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 as long as you're, it 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 you know, sometimes you actually want it to be on your personal credit report because it will enhance your credit. Right?

It depends. You know, I really caution about the revolving accounts like credit cards or lines of credit because there FICO tells us, and FICO is the main calculator for credit scores in the U.S. 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 altogether. And the best scores go to consumers who use 10% or less of their available credit. Because 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 aren't. And so when you get out of the normal parameters or 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 and protecting your personal credit score. 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 do okay with those.

Okay. So this business credit thing has always been a mystery to me and it's a mystery to most people. I, I believe. I mean, you know, we all have know 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 did know that. Certainly have heard it and said it a million times. You know, I mean, how do you manage your business credit report?

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 of my expertise in credit. We really delved into this business credit and it's evolved a lot during the last few years, even three or four years. So here's the challenge. Business credit repair 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 even have to tell you that. So a lot of people don't even know why they were turned down for business. Small business loans. In addition to writing the book finance your own business with Garrett, I also work full time at a company called Nav n a V. 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 replacement 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.

Talk about how we do this. How do we get this business credit? Especially speaking if you would, Jerry, 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, 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?

The process is very similar to that of 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 that, where it's more confusing is these bureaus are very different. So the main credit bureaus for small business credit are Experian. They have a small business division, Dun and Bradstreet, or D and B, 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 you start with that, you know, with that credit card at your local Staples or Office Depot. You get a fuel card in the name of the business. You get a business credit card, a small business credit card. 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 D and B, you need four accounts that are reporting to D and B to develop your paydex score. So with four accounts you just pay them on time.

So Dun and Bradstreet, Dun and Bradstreet is one of the credit reporting agencies and, and pay paydex score P A.

Y, D E, X is their main score.

So is that analogous to FICO score on the personal side?

It is, it is, it's very similar. It's their version. Although the top score is 100 and with a FICO score, your top score is 850. So these run on a different, very different scale than your personal credit. But they look at the same types of things, you know, payment history and debt. They'd also look at things like how long you've been in business, what industry you're in. So if you are in a risky industry, then it's harder to earn a top score. And what's interesting with real estate is at 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 entities, because they were not buying and selling real estate, were able to establish a higher score a little bit more quickly just because that industry wasn't considered as high risk. Now it's definitely improved since 2008, 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 a one shot thing associated with you.

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?

Well, I hope you don't mind. I'd say first read our book or.

Listen to it on Audible. It's an audio format.

It is, it is an audio and in printed form and coming on Kindle soon. And just because, and by the way.

I should say to the listeners, I'm about halfway 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. Yeah.

And once, once you get the basics, you're going to find it's just very similar. It's just we're 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.

Dun and Bradstreet.

Dun and Bradstreet, Yes. 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. Right. That's one or the other. But with these scores, they actually look at something called days beyond term. So they look. Did you pay five days after the invoice was due? If that's. 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 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.

So look, 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. 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, you know, who, who, who reports this stuff? Like, I mean, no one's ever asked me to report anyone else that owes me money.

Yeah, well, it's hard for individuals.

When I say me, I mean my company.

Right. And it is a little bit. It's jumping through hoops for individuals to get set up to report. But absolutely, you know, you get an equipment lease and 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 certain retailers that cater to small business, but then also in D and B. A lot of these are businesses that just traditionally have reported. So you may find a printer that you use that will report. You may find that when you buy something on terms, it might be some of your supplies for your rehab, 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?

I know, but I can't believe. I can't believe the little printer that I use, you know, around the corner is actually reporting like they have a. That's a whole job for them to manage all of that.

Well, it may not be the 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.

It's this whole ecosystem that we just. Unless until you deal with it, you don't know about it.

Yeah. Okay. What. 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?

You could, and you certainly can. And if that's your choice, I hold nothing against you. I think there's of a lot.

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 NAV site, get your credit rating, and then you find some lenders that report and you apply and you get those cards and you start using them. 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 some reliable sources who can help you get started with a business credit. 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 treat this like everything else in your business, where, yeah, 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 business credit is along the same lines.

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?

Yeah, Well, I would say another thing that you want to keep in mind is that business credit transitioning to business credit is a process from 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 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 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. There are sites, NASA gives a personal credit score. You have credit.com and credit karma and all these other sites. You sign up, 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 I think is getting really, really interesting, Jason, is the whole crowdfunding space.

Yeah, I was going to 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.

Well, it is, because it's. What I'm seeing is this. There's this interesting blend. First of all, cross crowdfunding comes in different forms. So you have the reward based. 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, 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. You can't advertise.

What a complicated thing.

Yeah, it's a very, very closed system. Really, really kind of shut out a lot of other people.

Well, this all changed because of the JOBS act, which is one of the four good things Obama has done during his presidency. But. Yeah. So tell us what this means now on the equity side of crowdfunding.

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, 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'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 0% loans. They're small loans. So most real estate investors probably would not be using this unless maybe they were doing some kind of community project.

But I'm a Kiva lender. I mean, 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 figure that's better than putting my money in the stock market.

Yeah, no, I do.

And I can actually do some good in the world.

You know, I say I support small businesses. I want to put my money where my mouth is and support these small businesses. But 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 a loan. Now, in 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 this, here's what this means for small business owners. And I don't care whether it's real estate or anything else. I think your reputation is becoming so crucial and it's going to 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 too 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 real. If you think you were overwhelmed just thinking about business credit, now you've got this whole reputation to maintain. But I really. That's the direction we're moving right now in the small business lending around arena.

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 drunken 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.

Well. Well, it goes back to the very early days of lending 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's 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 a 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 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.

Yeah, okay. Okay, good stuff. Give out your website. Tell people you know the books on Amazon, Amazon, Audible, etc. What is your website, Jerry?

Yeah, so the book is available at corporate direct, corporatedirect.com 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 same business credit page on Corporate Direct. Or you can go directly to NAP 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 through the Corporate Direct site.

Fantastic. Jerry Detweiler, thank you so much for joining us and talking to us about this, this little known area that it's becoming more and more important and there are some good opportunities here. So it's good to know more about it.

My pleasure.

You know, sometimes I think of Jason Hartman as a walking encyclopedia on the subject of creating wealth.

Well, you're probably not far off from the truth, Penny, because Jason actually has a three book set on creating wealth that comes with 60 digital download audios.

Yes, Jason has that unique ability to make you understand investing the way it should be. It's a world where Anything less than 26% annual return is disappointing.

I love how he actually shows us how we can be excited about these scary times and exploit the incredible opportunities this present economy has afforded us.

We can pick local markets untouched by the economic downturn, exploit packaged commodities investing and achieve exceptional returns and safely and securely.

I also like how he teaches you to protect the equity in your home before it disappears and how to outsource your debt obligations to the government.

And the entire set of advanced strategies for wealth creation is being offered at a savings of $94.

That's right. And to get your Creating Wealth Encyclopedia series complete with over 60 hours of audio and three books, just go to jasonhartman.com store if you want to be.

Able to sit back and collect checks every month just like a banker. Jason's Creating Wealth Encyclopedia series is for you. This show is produced by the Hartman Media Company. All rights reserved. For distribution or publication rights and media interviews, please visit www.hartmanmedia.com or email mediaartmanmedia.com Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate or business professional for individualized advice. Opinions of guests are their own and the host is acting on behalf of Platinum Properties Investor Network Inc. Exclusively.