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Having Trouble Getting a Loan for an LLC? We’ve Got You Covered

Scott Smith
2 min read
Having Trouble Getting a Loan for an LLC? We’ve Got You Covered

This article does not constitute legal advice. We recommend you seek the counsel of an attorney familiar with your specific situation and market to ensure you make the best decisions within your real estate business.

Good news! Consider this lending problem solved.

Time and again, I hear complaints from my clients and fellow investors about the difficulty of getting a loan for an LLC. They’re usually confused, because they already know that using a traditional LLC (or ideally, a series LLC) is the best way to manage their property. As is often the case in my practice, the person is asking the wrong question. Investors ask me how to get a loan for an LLC, when the better question is, is there a better way to get the loan they need?

There’s a better way to set up your LLC or SLLC to serve you, but it starts at the very beginning. Follow these simple steps and you won’t be awake at night stressing about taxes or due-on-sale clauses. Hell, that’s my job. But I’ve found that just taking these steps, in this order, helps me avoid a lot of these problems altogether. Let’s get started.

Related: Top 3 Real Estate LLC Myths: Busted!

Step 1: Buy in Your Name

As a general rule, you are going to have a much easier time securing a loan than an LLC. Maybe you’re eligible for a personal or business loan. Many of my clients have good home equity and use funds from their HELOC to purchase rental properties or second homes. If you’re absolutely clueless in this department, talk to your banker. You may be eligible for a variety of loans and simply not know it.

first investment property

Step 2: Transfer to Land Trust

This is a crucial step, both for protecting the land itself and avoiding the due-on-sale clauses that come standard with most loans. In short, most loans must be paid back in full if and when the property is transferred. However, transferring property to a land trust does not violate the due-on-sale clause. You get to keep your loan and avoid the whole (typically fruitless) hassle of attempting to get a major creditor to give a loan to the LLC itself. This handy dandy loophole allows you to move and manage your property without having to cough up a bunch of cash.

As an added bonus, the land trust grants you, the investor, anonymity. The anonymous land trust is nearly impossible to penetrate in court. As those who have read our other articles on anonymity will understand, it is nearly impossible to be sued if nobody can prove you own a property. The land trust piece helps prevent lawsuits by legally separating you from the property itself.

Related: 3 Benefits of Holding Your Properties in an LLC

Step 3: Land Trust to LLC

Once you’ve transferred your property into a land trust, simply deed the property to your LLC.

Last but not least, you will need a solid operating and property management agreement for your LLC to effectively manage the property in the trust. Your attorney can help you sort out the details here while preserving the anonymity you have already built.

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Do you have any experience with this method of getting your loan? Share in the comments below!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.