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Updated almost 5 years ago, 02/15/2020
Finance Commercial Property in LLC no personal guarantee?
How do I finance a commercial property in an LLC with no personal guarantee?
A lot of people say oh you always need to personally guarantee because the lender wants to minimise their risk but I know it’s possible.
Is their loans secured by the property as long as it cash flows and is at the required DSCR such as 1.25 or above?
For example I’m pretty sure that when big companies finance real estate the executives don’t have to all guarantee the loan in their own personal name?
If lenders really force personal guarantees can’t I guarantee the loan in a company’s name?
If everyone guarantees a loan wouldn’t many people be bankrupt as markets are always going up and down?
I’ll really appreciate you guys answers thanks. Could you also share this question around to experts who may know because this is a serious learning barrier for me?
Thanks in advance.
@Bellman Tumasang most commercial assets with loan amounts over $1.0MM qualify for non-recourse loans. Non-recourse means that the lender's only collateral is the property that they're lending on, assuming that you follow the rules and don't do anything illegal. Recourse means that the borrower needs to personally guarantee the loan.
If you're looking at multifamily properties, many investors like to use agency debt (Fannie Mae or Freddie Mac). Another option is CMBS debt. Both of these options offer non-recourse loans. Arbor is one of the biggest direct lenders in the country. See the link below to an old article on their website that will help give you some clarification.
https://arbor.com/blog/fannie-mae-freddie-mac-or-banks-which-apartment-loan-is-best-for-you/
@Charles Seaman alright thanks can I get the non recourse loan in a property specific LLC without me putting my assets at risk with a personal guarantee?
@Charles Seaman alright thanks can I get the non recourse loan in a property specific LLC without me putting my assets at risk with a personal guarantee?
@Bellman Tumasang Yes. Most lenders will require that you do that. But it all depends on the lender that you use. If you're planning to use a traditional bank, then you will most likely need to personally guarantee the loan.
Originally posted by @Charles Seaman:
@Bellman Tumasang Yes. Most lenders will require that you do that. But it all depends on the lender that you use. If you're planning to use a traditional bank, then you will most likely need to personally guarantee the loan.
Alright do you need some lenders that give loans to property specific LLC's with no personal guarantees? Websites? What interest rates do they offer? Interest only payment periods?
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#2 Land & New Construction Contributor
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Originally posted by @Bellman Tumasang:
Originally posted by @Charles Seaman:
@Bellman Tumasang Yes. Most lenders will require that you do that. But it all depends on the lender that you use. If you're planning to use a traditional bank, then you will most likely need to personally guarantee the loan.
Alright do you need some lenders that give loans to property specific LLC's with no personal guarantees? Websites? What interest rates do they offer? Interest only payment periods?
This all depends on the property, your financial strength, cash reserves and the lender. You need to talk to several local and commercial banks and lenders. You can do a google search for t=lenders of your specific type of property. Freddie and Fannie have a list of multifamily lenders on their sites.
@Bellman Tumasang There are many. Fannie Mae and Freddie Mac will often be your best options. They do offer interest-only periods on certain deals, but rates and terms will vary from deal to deal. It's not uncommon to see rates in the mid 3% range at this point. If you're just starting out, your best bet will be to deal with a mortgage broker.
@Charles Seaman alright can you give me the website links please?
Hi Bellman, I finance commercial real estate and multifamily as my profession and anything under 1mm loan amount will have personal recourse. There is no economies of scale for loan amounts under 1mm to make it non-recourse and yes lenders do see it as a big risk because the asset they would take over in case of default, probably isn't the most interesting to them anyway. Hope this helps