BiggerPockets

boywonder,

You can do this just like any company can get credit from a bank. First, you have to develop a credit history for the LLC, in the LLC's name. Get a credit card, then get a small loan, then maybe a larger one, etc. It really helps if you have those pesky things called "assets" too. If, on the other hand, you don't have any assets and you have no credit history, then you probably won't get any financing from a traditional bank. There are secondary lending markets (see topic in the Forum Index) where you might find other options. Secondary markets and all business loans for that matter, tend to come with higher interest rates b/c people care less of their company goes bankrupt or defaults then if they personally do; that's reflected in the banks risk, and therefore the interest rate charged. These are the rule--there are exceptions.

One thing you could do is to transfer a property or two into the LLC. If it's paid off and held in the name of the LLC, then you should be able to get credit the traditional way no problem, using the real estate as collateral. But, if you still carry a mortgage, I think you still get tied in. I'm no expert but I have sought financing through LLCs. I've had assets and credit history though.

Hope this helps.
Jeff

You can get a business credit card at any major bank. The best ones, in my opinion, offer high percentage back in cash--the airline miles equate to about a 1% return, whereas you can get as high as 3% return cash back. CHASE has several cards with no annual fee and good rebate/returns. Them, and American Express' Blue Cash, offer the "best" cash back situation. Assuming, of course that you pay them off each month. I navigated to those two cards based on an article I read (can't remember which article) on an airplane magazine talking about what business cards are best. Of course, they're likely in there because of the full page color ad on page 122, but hey.

Otherwise, you'll generally need assets or a proven track record of revenues. Lots of people start LLCs because they assume it will provide liability coverage (which it doesn't always) and to be sneaky with securing traditional money. It's a company. You need to keep books, write checks, have credit cards, buy staples, that kind of thing. If you don't a judge will pierce the corporate veil in a heartbeat and you won't have any legal liability protection. As a pass-through entity, there are no particular tax benefits except that it helps to fend off an IRS audit by showing that you run a legitimate business and all those deductions you claimed were legitimate, but ONLY IF YOU KEEP GOOD BUSINESS RECORDS and do all those things above like write checks and operate like a real business. Banks, too, don't like to be hoodwinked and will require some form of: 1) Proof that you are a real company that makes money, or 2) an asset the LLC can pledge as collateral.

My advice is to start small and get a credit card. Buy stuff with it (doesn't do any good to have an inactive credit card on your company credit report). Try to turn some profit. Use the LLC to collect rents from your own units at least and take 20% fees. In a few months, talk to a bank and see if they'll loan you $2,000. Pay it back over 6 months. Bottom line here, really, is why do you want money for a business if it isn't FOR the business? If you are looking for a way to get a bank to loan you money that you aren't personally liable for, an LLC is not a good idea. 1) its fraud. 2) banks will see through it.

Why do you need the money? {may change the situation}

1) You can rent them out. When you go for your next mortgage, the bank will count 75% of that income against your debt-to-imcome ratio. If you're able to get rents at 125% mortgage 9PITI really) then you are more or less zeroed out.

2) Seller financing. Buy a place, fix it up a bit, then do seller financing. You still hold the deed as the mortgagee, but then again you don't really own the property then either.

3) Find funding from secondary lenders/funny money. See the alternative financing forums in the index of this site.

4) Build up your equity and/or 1031 Exchange until you can buy a place with almost all cash or all cash. If you have that in an LLC, then I suppose it wouldn't hurt if you asked for more money.

I could be wrong but I don't know of any benefit in terms of getting a bank loan b/c your stuff is in an LLC. Banks aren't that sloppy generally--and, if you don't want to commit mortgage fraud, that's probably the deal.

Are you going to be the sole owner of the LLC? Even if you aren't directly responsible for the LLC debts, banks will want to see that you are making positive cash flow with your LLC. If you are paying out more cash per month then you bring in then your "investment" is actually hurting your financial position regardless of whether you are directly liable for debts.

Originally posted by "boywonder"

Yes, I am the sole owner. I am definately making more than I am paying out, so I would have a positive cash flow. I just want to be able to free my own name up.

That's great news that you have positive cashflow. Remember, as a general rule, the lender will only use 75% of the rental income.

I don't know what state you want to finance the properties in the LLC but here are a couple of banks that do finance corporations.

www.helveticagroup.com
www.bankunited.com

Let me know if you need a specific state.

To Your Success,

Tony Baricevic
Mortgage and Equity Consultant

You're welcome! Let us know how it works out or if you need more info.

BTW for CT or NC you might try
www.bankunited.com
www.easternsavingsbank.com

To your success,

Tony Baricevic
Mortgage and Equity Consultant

I also am curious of that scenario ?? It seems as if my business partner and I can easily get personal loans/mortgages. But I wonder if that will affect my own life with credit issues.

If we take out a loan in our names and then transfer the profits into an LLC formed along the way- is that even legal? Or does that even make sense to do that?