The Great LLC Lending Problem: Why Won't Anyone Loan to My LLC?

Time and again, I hear both my clients and fellow investors complain 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 how to get a loan for an LLC, when the better question is: is there a better way to get the loan they need?

Yes: there's a better way to set up your LLC/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.

Step One: Buy Property 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.

Step Two: 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/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 make 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 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.

Step Three: Land Trust to LLC

Once you've transferred your property into the Land Trust, your Land Trust can be incorporated into your LLC or Series LLC structure. To ensure you're completing this step correctly and in compliance with state laws, get help from a qualified attorney. 

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. While in theory you can do any of these steps yourself, a qualified real estate attorney can ensure you're doing everything possible to keep your entity compliant.