Is it possible to buy real estate under a corporation with no personal guarantee?

Question

The Dun & Bradstreet paydex score is above 80, and company has been in business for 5 years. Personal credit is strong (700+) but thats what we're trying to stay away from. I know about LLC and personally guaranteeing it that way. Just wanted to know if it was possible under a corporation. A lot of companies out there brag and boast about being able to do it but in the end never come through. I know how the game works for Trade credit and cash credit and was able to obtain the financing, just need to know the real estate side now. Any answers/help would be greatly appreciated

Answer 1

Yes if the company is worth lending to.

1. Credit score for the company. This indicates if it has used credit in a responsible fashion in the past.

2. Income that the company produces without your involvement. Can the company pay the loan back based on its own income?

3. Assets? Does the company have assets that shows that it is will not go away quickly? That other assets could be sold if needed to pay back the loan. Of could other assets be added to the collateral to better secure the loan?

4. Does the business proposal for the loan make sense? Will this deal go smoothly? Has there been any transaction in the past that shows a history of success with similar transactions specific to this company.

5. If there are gaps can a co-signer or personal guarantor step in? Someone to back up the company given that it lacks the ability on its own at this point? Assuming yes, could the guarantee be limited to 12 or 24 months so that the loan is only in the company's name after that point. This means the co-signer is completely released assuming no default on the loan prior.

Real estate is no different then other forms of business credit other than two factors. The numbers are bigger so the risk is higher unless the company has a substantial balance sheet. Second the real estate does provide a direct source of collateral.

A company can get a credit card or account with Home Depot, Staples and other such places pretty easy because the amount is small relative to the company's size and income. When the loan for real estate is similar banks will offer the company financing.

Note that smaller banks will work with local companies. They can see the details better and are more skilled at evaluating local risks. Note also that a loan for real estate to a company is not going to be on the same terms and conditions that it would be to a person. Expect a shorter loan term, a lower LTV and higher rates but likely lower closing costs. The exact figures will vary.

Answer 2

Start calling some local bankers. Try some big banks, a couple smaller commercial banks too.

You won't be getting Fannie Mae loans, so plan on paying commercial rates. Which aren't necessarily bad, some are quite good actually, but they're more likely to be adjustable, and require bigger down payments. From there, it's usually mostly about the debt service the building can cover. Most banks would want at least a 1.25:1 DSC. Meaning, the property cashflows 25% higher than your debt service. That gives you enough cash to cover vacancies, repairs, etc...

But if your business is existing that long, is profitable, and has a credit rating that's acceptable, it should be doable. You just gotta start shopping for the right banker.

Answer 3

It is possible, but ask yourself this question? Can the corporation pay for the mortgage out of any income being produced by the corporation.

The reason for the personal guarantee is because the corporation can not prove income, has little or no assets other than the house or property that is being purchased.

If you want the corporation to purchase real estate the corporation has to qualify the same as a person. Everyone is making corporations these days and placing one house in the corporation that is heavily mortgaged, paying the mortgage personally by putting money out of their pocket to pay the monthly mortgage payment.

Basically that is the reason for the personal guarantee.

I hope this has been of some use to you, good luck.

"FIGHT ON"

Answer 4

In order to get financing you will have to show income and credit. The best way at least for the first few years is to co-sign the loan for the corporation and build the credit. You should have the deed in the corporate name and have all income documented to the corporation so the company will start to have assets etc.

Answer 5

Banks are willing to finance business loans without a guarantee more and more--but you have to be willing to pay a higher rate, put a lot of equity down, and/or agree to significant restrictive covenants. It all depends on the lender and their bank policy and their current loan portfolio (i.e. if they already have too many real estate loans--and yes that is regulated--then they're not going to add one that's not really an awesome deal for them). Shop around.

Answer 6

Well, in the US you can only do this if they are rentals. You can't live in a company owned house.