please help-incorporated/credit question - Posted by clinton sims

Posted by Tim_Cleveland on January 02, 2007 at 08:03:35:

I agree that in many cases the personal guarantee is pretty under-considered when looking at a person’s likelihood of paying their debts, personal and commercial. As you mention, the personal guarantor is the avenue of last recourse when all things fail and they can’t make the $599 a month lease payment on that 6 year low mileage Mercedes.

I have not been down your way in some time but need to get back there in the next month or so. Been absolutely engraining myself in Illinois. But some changes are freeing me up a bit from there. I have some business to deal with over in Madison, Franklin, Jeffersonville and other IN towns in your general area. I will have to go claim the slab they are holding for me. Glad to hear you are still keeping them in business during my extended absence.

Best Regards,

Tim

please help-incorporated/credit question - Posted by clinton sims

Posted by clinton sims on December 28, 2006 at 14:20:48:

my partner and i purchased 7 units last yr, THEN incorporated. we have yet to put them into the corp. he was primary financer, i’m on titles. we’re newbies (as u can probably tell!!). we thought that by putting the units into the “S” corp, his personal credit would then be non/less affected. if this is so, is it done by the quit claim deed ?, selling the units into the corp? , (and how is that done?). he had never been denied credit and recently tried to buy a car and they denied him bc of the units. our objective is for both of us to have equal ownership, be protected legally bc i have a primary residence and he doesn’t, gain any tax benefits, and keep our credit profiles from being neg. affected (if possible)PLEASE HELP!!!

Re: please help-incorporated/credit question - Posted by JT-IN

Posted by JT-IN on December 28, 2006 at 16:09:24:

CS:

You need to run all of this past a competent Acct, prior to acting on any advice here, including mine… With that said, the property can be deeded to the Corp, or really sold to the corp for the basis that the title holder currently has in the property. There are some tax snafu’s that you must be aware of, when transferring prop to a Corp, but I won’t address that here… That is why you consult tax counsel.

Once the property is owned by the Corp, then the Corp can obtain financing to payoff the current mtgs which appear in your partners personal name. These will be comm’l loans, at a slightly higher rate than those you may currently have. You will each be required to sign as guarantors, personally for the amount of the debt, in the event that corp goes belly up. Be aware that you are signing joint and several here, which means that you are each responsible for 100% of the repayment, in the event that your partner goes south, along with the Corp. These new mtgs should NOT show up on your personal credit, therein relieving the problem as it exists now.

The new problem will be that the payments will be higher, due to the increased perceived risk of the comm’l notes. Regardless of the fact that you each guarantee the repayment personally, these rates are usually 1 to 1.5% higher than a true residential loan. The trade off…

From a taxation standpoint, the S-Corp will deduct the interest and other business expenses against its revenue. Any profit or loss will be passed along to each of you in the pro-rata share of ownership, (50/50, 75/25, etc.), via a K-1 at tax time. Again, an accting function and one that you should seek help for.

Hope this answers your questions in near total… Good luck on it.

JT-IN

Looking for other personal guarantees? - Posted by Tim_Cleveland

Posted by Tim_Cleveland on December 28, 2006 at 16:35:22:

Hey, JT. Long time no talk to.

Anyway, isn’t there a way to find out if someone has personally guaranteed a commercial loan? Something tells me that from talking to soem bankers I work with in another arena that I have heard such a way. I think it is by running a personal D&B or pulling UCC filings. I am not saying that the average auto finance company will do such a thing, but I think I have heard of banks doing so to find out if the personal guarantee that they are relying on for final recourse might be encumbered by other personal guarantees.

Just curious if you have any insight on this.

Thanks,

Tim

Re: Looking for other personal guarantees? - Posted by JT-IN

Posted by JT-IN on December 28, 2006 at 22:06:14:

Tim:

UCC filing will show up what you refer to… at least that comm’l credit has been filed, or granted. It is also a foregone conclusion these days, that any corp under 250 mil in capitalization, will have a guarantor for it’s debt, or else a Banker is swimming in shark infested waters, without the Vonage box.

However, the important thing here is that it free’s ones credit report from such reporting and will cause the FICO to skyrocket… and that is what consumer credit is all about, the ever important FICO. If the number is good, what do you want…? Take two, they’re small.

Bankers tend to discount the personal guarantee, which truly makes no sense when comparing ones liabilities, because the guarantees are surely a liability. Kind of like an umbrella policy, in the insurance world… LOL

Good to know that you are still out there… You still getting thru my neck of the woods, periodically…? Had a bumper day today… both lunch and dinner at the Inn. Just got home… some things never change… (hope not). There is a slab with your name on it, I’m sure… Keep me posted.

JT-IN