San Francisco, CA · Member since 2016 · 42 posts · 25 votes
Hi-
Seeking to give out loans to property owners who hold the property in an LLC (multi-member, if that's relevant at all). For anyone's who's done this...
-Does it make a difference if the loan is made out to the LLC versus to the individual? Is the former simpler to set up from a regulatory perspective?
-If the loan is secured by shares in the LLC that owns the house... does that count as a personal loan or a mortgage?
Regarding "Does it make a difference if the loan is made out to the LLC versus to the individual?" In my book, yes, absolutely.
Disclaimer: California is not like a lot of other states. I can only go by CA Codes and what I find in them. So don't rely on what I say as legal advice or guidance, since I know not of foreign states like CA.
In NC, like in CA, LLC membership interest is personal property. Not the subtle difference in wording between these states: NC says in the LLC statutes that . I can theoretically sell my LLC membership interest just like I can sell my car. It's not quite that simple, though, because of operating agreements, member makeups, etc., but hopefully you get the point. CA code says: So you'll need to explore what limits on transfers there are.
An LLC is an entity, it is not personal property. As an entity, it has certain rights and privileges, can encumber property it owns, etc.
Lending against someone's personal property does not, by definition, constitute an action by the entity and it would not be considered a mortgage against LLC owned property.
You increasingly see lenders making loans *TO* LLCs. I don't see a lot of instances where someone gets a personal loan backed by shares in an LLC that owns a house! I'd be super curious if anyone has heard of this.
You increasingly see lenders making loans *TO* LLCs. I don't see a lot of instances where someone gets a personal loan backed by shares in an LLC that owns a house! I'd be super curious if anyone has heard of this.
For personal property loans, where you will see borrowing is not from a real estate lender but a securities lender. In the US, the amount of . I can borrow against my shares in Highwoods Properties (a commercial REIT based in Raleigh) or an ABS (e.g. AH4R Assets, LLC CIK#: 0001652227 if it were publicly traded) without the entity knowing or caring about my interest.
So the short answer is commercial lenders will lend against tangible personal property interests where the borrower can show liquidity and value in the asset. Publicly traded stocks are generally easy, Startups or closely held companies with assets comprised of mostly intellectual property... not so much.