Lender is Requiring a Liquidity Partner

[Jadon Grant]

Hey BP Community!

So, I finally locked in my first deal that's promising some pretty big potential. The issue I've run into is since I am so young, the Private Money Lender is requiring that I find a Liquidity Partner to bring into my LLC and prove Government issued ID and 2 months of bank statements showing 25-30K in profit. The Liquidity Partner would be signed as a 1% owner of my LLC and should I default on the loan, the Lender only goes after owners with over 20% ownership.

Does anyone on here know anyone or any businesses that offer Liquidity Partnership?

Thanks!

Jadon Grant 

[Stuart Udis]

@Jadon Grant I believe you misunderstood the lenders requirements but as a baseline, lenders have different guarantor requirements. I've seen some lenders require all members sign, others require anyone with membership over 10%, 20%....it depends. Depending on the borrower this can be negotiated as well. I suspect in your case the lender you spoke with is requiring all members with 20% ownership interest or more to be a guarantor. Expect to give at least 20% of the upside to the guarantor. 

I doubt a lender will accept a guarantor who holds 1% ownership interest. This is because there is established case law indicating a benefit must be received to be held personally liable for a loan guarantee (can the lender go after the borrower personally in the event of a default). Not only will the 1% fail this test, but it will also be difficult to find an investor willing to take on the risk for 1% of the project upside. I've seen guarantor fees paid out that aren't aligned with ownership interest but haven't seen a guarantor who holds 1%.