Post a new topic
    4 Replies Latest reply on Apr 29, 2008 1:59 PM by msw936

    advice needed on loaning funds to your llc partnership

    srodsrs Newbie
      I just formed an LLC with 2 others. We're looking at purchasing properties through foreclosure, then relisting at later dates. All 3 of us have equal ownership in the LLC. We're looking to contribute equally on labor, but funds are going to be disproportionate, as I'll be utilizing a HELOC to cover what we don't equally put up in cash. My partners are going to guarantee their portion of the HELOC interest (and loss risk), with the principal being paid when a sale occurs.

      My question is, what is a fair way to compensate me for using/tying up my equity? Should I charge the LLC an additional interest rate above and beyond the HELOC rate (if so, what sounds fair)? Should I just charge a couple of points payable upon witness of a profit? Any and all advice is very much appreciated.
        • Re: advice needed on loaning funds to your llc partnership
          LUCKIEST Guide
          Advice needed on loaning funds to your llc partnership
          Welcome to this web site. Do you have a Lawyer??
          Have you developed a Business and Marketing Plan??
          *"*My question is, what is a fair way to compensate me for using/tying up my equity?"
          This should be discussed among the 3 partners, BEFORE you start.
          Everybody in business should have a Lawyer, An Accountant and an Insurance Agent.
          Good luck, LUCKIEST
            • Re: advice needed on loaning funds to your llc partnership
              srodsrs Newbie
              And we are, we are just having trouble coming up with a fair and equitable way to reward my extra investment (we don't have experience to know what the "industry standard" would be).
                • Re: advice needed on loaning funds to your llc partnership
                  dublincpa Scout
                  Since it is your house at risk, I can see where some premium would be fair. However, I don't know how big of a premium is in order if they are guarantor's on your LOC. All three of your credit would get trashed prior to any action on your home. Banks typically charge 0.5% or 1% of the amount for a letter of credit. This is kind of similar, maybe, sort of.

                  Luckiest is right that you guys should talk about and decide what's fair amongst yourselves. Usually what is fair is a difficult compromise that makes everybody feel they are leaving a little on the table.

                  Hope this helps a little bit. Good Luck.
              • Re: advice needed on loaning funds to your llc partnership
                msw936 Newbie
                You mentioned that the three of you have equal ownership in the LLC, but that you are assuming most of the financial risk. My suggestion is that you renegotiate the percent of ownership with your partners according to the financial risk taken by each partner. Such an arrangement is fair and would not only govern the percent of ownership, but also the distribution of profits. For example, if the total initial investment were $ 100,000 and your investment amounted to $ 45,000 then your percent of ownership and share of any profits would be 45%. Your partners, in turn, would also receive fair treatment according to their investment percentage. Normally, in a business arrangement, the person who takes the greatest financial risk should be in a position to exercise the greatest control and receive the greatest return on their investment simply because they have the most to lose. Lastly, such an arrangement eliminates the need for trying to figure out a fair percentage of interest to charge the other partners for the larger amount of money that you invested. I hope this helps!