Why do I need an LLC to close on a loan? Jordan Brewer
Do Hard Money is NOT a mortgage lender. Essentially we provide business loans for capital investments. We do NOT provide loans to individuals or for owner-occupied properties. If we did, your whole loan process would be subject to mortgage law and all the red-tape and hassle associated with it. All that red tape takes more time, costs more money, and in most cases would keep us from being able to provide you with a loan in the first place, especially a 100% financing loan.
In order to minimize the time and cost for all parties involved and maximize the loan amount you can get and to meet all the legal requirements for providing the loans we offer, we have to lend to a corporate entity, and not just any corporate entity. We setup a single-purpose business entity in the form of an LLC for each property we lend on. We do this for a few reasons:
1. To Ensure Protections: Many prior LLCs or other corporate entities setup previously by our borrowers are incomplete or vulnerable and do not adequately protect the borrower from liability and risk. Just because you have an LLC does not mean you are protected.
2. To Minimize Risk: One of the primary way's we reduce risk with out proprietary LLC formations is to virtually eliminate the risk of foreclosure. We do this by establishing the LLC with the shares of the entity as collateral for the loan. By doing this... in the WORST case scenario a simple SEC transaction is all that is required instead of a painful foreclosure proceding and a foreclosure on your personal financial records.
3. To Isolate Liability: If your business entity owns more than one property then liability from one can negatively affect profit on another. Just like you setup a business entity to protect your personal assets from the liability of your company... we setup a separate entity for each property to protect that asset from the liabilities of your other business activities. If you did not do this and a contractor, real estate agent, or potential buyer was injured on a different property and sued you... the actual asset and potential profits from your deal would be subject to that liability.
Check out our YouTube video: What Is a Single Purpose Entity
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