Appropriate entity/structure for money Lending

3 Replies

Looking to get advice on what the appropriate entity would be for a private money lending opportunity. I have a friend looking to invest 50-100k in a flip project. No equity. 10% ROI with a 14 month term.

His intent is to have seperation from personal finances/accounts etc. We discussed LLCs, S Corp, but I don’t know well enough to give him accurate advice.

Anthony:

I would be really careful here.  Unless you are both a CPA and attorney, I would be hesitant to give any advice to your friend especially if he is investing in YOUR project.   You may want to encourage him to seek independent advisers. 

Good luck

Originally posted by @Greg Scott :

Anthony:

I would be really careful here.  Unless you are both a CPA and attorney, I would be hesitant to give any advice to your friend especially if he is investing in YOUR project.   You may want to encourage him to seek independent advisers. 

Good luck

 I appreciate your concern Greg. It’s not my project and OFCOURSE he will ultimately pursue that route. The reality is that this whole forum could be directed to a professional in a given field. My intent behind posting the question is to educate and develop a better understanding. I would always recommend your advice to anyone looking into this sort of thing, but I also always encourage learning and better understanding.

So long as your friend understands and follow the rules, @Anthony O. , lenders have comparatively little legal liability. Until we became licensed, my wife and I loaned money for many years under our own names, using a licensed real estate broker to originate our loans. This is completely legal.

Depending upon whether it's a single or multi-member LLC, and for a host of other reasons, an LLC might or might not provide adequate legal separation. As a pass-thru for taxes, it will provide no tax benefits. Interest income is taxed at ordinary rates and you can subtract legitimate investment expenses whether in an entity or not.

Your friend could certainly open a separate bank account and track his lending income and expenses separately in any accounting program he might use. In my opinion, however, he'll get more protection and peace-of-mind by educating himself first and using a knowledgeable broker than forming an entity. (Not a solicitation, by the way. We don't do this.)

Jeff S. – Private Lender in Los Angeles

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