Yes, you can usually borrow through an LLC on a private money loan, and many real estate investors do. The lender will want to see that the company exists, who owns and controls it, who has authority to sign, and how title to the property will be held. In many cases the owners are also asked to stand behind the loan personally.
The details depend on the deal and the lender, and this is general information, not legal or tax advice. Your attorney and tax adviser should guide the decision about whether to use an entity at all. What follows is how the process typically works from the lender's side.
Why investors use entities
Investors often hold property in a company for liability, organization, partnership or estate reasons. Private lenders are used to this. Because underwriting is equity-led, a company formed for a purchase is not a problem in itself, and that is one place private lending differs from conventional financing, which often prefers seasoned borrowers. The question is less how old the company is and more whether the property, the equity and the exit make sense.
Documents lenders typically ask for
Expect a request along these lines:
- Articles of organization: the filing that created the company with the state.
- Operating agreement: who the members and managers are, their ownership, and who has authority.
- Certificate of good standing: where available, showing the company is active.
- Resolution or consent: a signed document authorizing the company to borrow and naming who may sign.
- Tax identification number: typically an EIN issued to the company.
- Identification for owners and signers: to confirm who is behind the entity.
If the LLC is owned by another entity, such as a company or a trust, the lender will want the documents up the chain until it reaches the individuals. Our general document checklist covers the rest of the file.
Key takeaways
- Lenders want formation documents, the operating agreement, an authorizing resolution and ownership detail.
- Title should be vested in the borrowing entity at closing, or the lender must understand why not.
- Personal backing for the loan is common. Ask what you are agreeing to and have your attorney review it.
- A newly formed LLC is workable if the property and exit are strong.
Vesting: who holds title
Vesting is how title to the property is held. If the LLC is buying, title is generally taken in the LLC's name. If you already own the property personally and want to move it into a company before or at a refinance, that transfer should be planned carefully, since it can affect existing loans, insurance, title coverage and taxes. The lender and the title company need the vesting to match the borrower. Raise this early. A mismatch between the borrower named on the loan and the owner on the title report is a classic cause of delay; see our guide to title reports.
Personal backing in general terms
Often a lender asks an individual to agree to be responsible for the loan in addition to the borrower. For loans to companies, lenders commonly ask the principal owners for this kind of personal commitment, because a newly formed company may have few assets of its own. The terms vary, and some situations are structured differently. Read any such commitment carefully and ask an attorney what it means for you. Don't sign what you do not understand.
Newly formed entities
It is common for an investor to form a company just before buying a property. A new company has no operating history, no tax returns and no credit file of its own. A private lender looks to the property, the equity, the borrower's capacity to make payments and the people behind the company. Be ready to provide:
- A summary of your experience with similar properties.
- Information about your own finances and real estate holdings, where requested.
- A clear explanation of how the company will make payments and repay the loan.
If the company is not yet formed, form it before applying if you can. Setting up the entity, getting a tax number and opening a bank account all take time, and a closing date will not wait for them.
Practical tips
- Make sure the name on the contract, the loan application, the insurance and the title all match exactly.
- Confirm who signs, and that the operating agreement authorizes them to.
- Keep the entity in good standing with the state.
- Tell the lender about partners and co-owners early.
For investor files in particular, our investor page explains the kinds of loans we offer. Questions about structuring your loan request? Call (800) 943-1314 or apply online. Every application is reviewed individually.
Published by the US Lending & Company underwriting desk. General information only — not legal, tax or investment advice.