HML asking to change operating agreement
I have LLC with 1/3 ownership between partners. I think we've asked if we can bypass credit being pulled on all partners. HML said an alternative is to change operating agreement to show >80% equity by primary borrower.
To me, running credit on all the partners is the obvious solution before changing the operating agreement. Now I’m curious though, is running credit and background on all partners, even if they aren’t bringing money to the deal a common practice with HMLs?
Any insight would be appreciated.
“So Bob will be the only one signing. So we need to adjust the operation agreement to reflect only listing as the majority share.
Bob please send us the op agreement reflecting you are majority share 80% or more. So we do not need to run credit and back ground for everyone else.”
We have resolutions authorizing Bob as a signer.
We have provided entities and tax IDs for companies holding the interest of our shared LLC. The lender has SSN of Bob, the primary signer, who is bringing money for the deal.
I haven't had the opportunity/need to use a hml, but I think what you are describing is normal. My understanding is normally the members personally guarantee the loan anyway. The hml criteria always include a basic credit score check. Just because one, or one of, the Members is authorized to sign I can understand why the hml wants to check all of you. Just my two cents...
Thanks @David M. I've found out since, that the lender will pull credit every 3 months, so it isn't a huge impact on credit like I thought it might be if they ran credit each loan--we're flipping several properties at a time.
I'm not a fan of the personal guarantee... isn't limiting personal exposure part of the reason I'm operating an LLC? However, if I were a lender, I'd do the same thing :) My first lender didn't require this, so the second lender had me questioning this process.
Appreciate the input!
No problem. Yeah I’ve always wondered about the personal guarantee myself. But once I don’t use it didn’t dig into deeply. I just see it like a co-signer on a residential loan, just different term (maybe even slightly different conditions since it’s non-residential). A co-signer I THOUGHT isn’t on the mortgage but is on the note or something…. Basically the co-signer is still “one step removed” from the person giving the mortgage…
So never figured out how it affects liability, but also figure it may not affect corporate veil because there is an agreement in place, and it’s customary.