Board Topic: HELOC for Property owned by Corporation
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HELOC for Property owned by Corporation

Posted by: Larry Brown Nov 17 2004, 03:42 PM
My "S" corporation (my wife and I are the only principals) bought a house for all cash 60 days ago for $160,000 intending to resell. We're proceeding with rehab, but it's taking a little while so I've been trying to get a HELOC to get some of the cash out. The lenders I've talked to don't offer a "consumer" loan to a corporation. I can get a full doc loan that'll cost $3,000 in fees. The HELOC has no fees, but I can't get it unless I quit claim the property back to our names. There's a $700 transfer tax to do that (no tax transferring from individuals to a corporation, but you have to pay if you transfer the other way). I see now that buying it as a corporation was probably a mistake, and if the transfer tax is the only fee it's still a pretty cheap loan, but I just thought I'd ask if you have any other ideas.

Posted by: loanuniverse Nov 17 2004, 04:34 PM
Larry:

I am a big fan of HELOCs, very little upfront fees {none if you get a good promotion} and you pay only for the money that you have out.

The purchase of the property under a corporate name was not the mistake. In fact, it is preferred to insulate you from liability. The mistake was probably assuming that you would be able to take out some of the cash out by using a consumer product.

The key here is how much of that money do you want to take out? If it is a low amount you can probably {read probably as maybe} get an unsecured loan for the company, but with the following characteristics.

- The loan will be either secured by the property or unsecured, but here is the trick it will have a first mortgage on the property as an “abundance of caution”, which is a banking term used by some lenders to mean “We are still going to get the collateral, but we are doing the loan like this so that we don’t have to follow our policies on structuring deals”.

- The purpose will be to finance refurbishments so it will be a good idea to provide with a construction budget.

- The source of repayment will be the sale of the house and your personal income.

- You can probably pull it off by contacting a small business banker and the fees should not be too high.


This is just an idea off the top of my head, and it is full of holes that can easily get you declined mostly due to the speculative nature of the project. However, small business lending allows for a certain level of creativity and you can probably entice the business developer by dropping the following into the conversation:

- Good loan to value.
- If this loan materializes, I am moving my personal depository relationship as well as keeping the proceeds of the sale here.
- Hopefully, you have good income that can be used as an additional source of repayment.
- Hopefully, your personal credit will also be a plus.

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