Borrowing in an LLC: How DSCR Loans Handle Entity Ownership

DSCR lenders routinely lend to limited liability companies (LLCs) and other entities. The LLC signs the loan and holds title, while the owners usually sign a personal guarantee. You will also need to show the entity is properly formed and that the person signing has authority to do so.

Why investors use entities

Investors put rentals in LLCs for many reasons: separating liability from personal assets, organizing a growing portfolio, bringing in partners or planning an estate. Whether an LLC makes sense for you is a question for your attorney and CPA. From the lender's side, it is a normal setup.

Who the borrower is

On an entity loan:

• The LLC is the borrower on the note
• The LLC holds title to the property
• The LLC signs the mortgage or deed of trust, through its authorized signer

That is a key difference from most conventional mortgages, which are made to individuals. If you already own a rental personally and want it in an LLC, a DSCR refinance is one common way to make that switch. Talk to your attorney before deeding a mortgaged property to an LLC on your own.

The personal guarantee

Most DSCR lenders ask the main owners to personally guarantee the loan. If the LLC defaults, the lender can pursue the guarantors. That means an LLC does not usually shield you from this particular debt, even if it helps with other liabilities.

Lenders usually require guarantees from owners above a set ownership percentage and review those guarantors' credit.

Example (illustrative only): Two partners own an LLC 60/40. Both are above the lender's threshold, so both sign guarantees and both have their credit reviewed. If a third investor owns a small slice below the threshold, that person may not need to sign.

At RSC Private Lending, the DSCR Rental program lends to LLCs, LPs and corporations with a personal guarantee. U.S. citizens and permanent residents are eligible; foreign nationals are not.

Documents to prepare

DSCR loans skip personal income documents, but the entity needs paperwork:

• Articles of organization (or incorporation)
• Operating agreement showing members, ownership and management
• A current good standing certificate issued by your state
• EIN letter from the IRS
• A resolution or other proof of who can sign for the LLC

Keep these in one folder. You will reuse them on every loan.

Brand-new LLCs

Forming a fresh LLC for a purchase is common. Most DSCR lenders are fine with a new entity as long as it is registered and in good standing, the documents are complete, and a qualified guarantor stands behind it. Form it early so the paperwork is ready before closing.

Common snags

• The operating agreement does not match state records
• The entity has lapsed because an annual report or fee was missed
• A member who must guarantee is not available to sign
• The name on the purchase contract does not match the LLC

What this means for you

Borrowing in an LLC with a DSCR loan is routine. Keep the entity in good standing, have clean formation documents ready, and plan on signing a personal guarantee.

Buying or refinancing in an LLC? Send RSC Private Lending your scenario for a term sheet in 24 hours. All loans are business-purpose and subject to underwriting.