Borrowing in different trust structure to allow you to keep borrowing

Hi Brainstrust,

I have read about this previously however not too sure how true or accurate it is. Do some banks completely ignore existing lending in a trust if you were looking to obtain finance in a completely new trust? Example ABC Trust holds several properties and lending and we approach the bank under new trust xyz. The lender will exclude the liabilities in ABC Trust?

I have seen some brokers in forums & podcasts in the past mention this without explaining who is doing this. Would this mean you could then potentially have unlimited borrowing capacity if you were to use a new trust for each purchase?

Thank you

 

Its not the trust that is important but the company. it works with new companies, whether in their own right or as trustee. This is because a company is a separate legal entity whereas a trust is not.

 

I can immediately think of three lenders that allow for this in their policies. Not something I'd recommend as a strategy though. It's more an omission of policy rather than an inclussion of policy. On the day of assessment the credit officer can very easily take a contrary approach and you can find yourself without finance at a critical point.

Also whilst this might be a bit unpopular around here and I don't entirely agree with this, but the conservative credit policies are in place to protect borrowers from themselves as well as from the banks.

 

Thanks Terry. But wouldn't the client be a guarantor still under each company or trustee company therefore meaning the liabilities would have to be factored into any new lending. Sounds like this would not be the case?

 

Thanks Peter. Very interesting. I posted the below to Terry which I thought would have been the case when assessing any new company or trustee lending. Anyhow it is interesting:

 

@Syd Investor you're right, most lenders require all loans being guaranteed by the applicant to be disclosed and assessed in the application, even if they're completely unrelated. Loans guaranteed by company directors will form part of the assessment.

There are a few lenders whose policy doesn't specify this, hence you can get away with not disclosing loans taken by other business entities that you've guaranteed. Officially these loans don't form part of the assessment.

That said, your credit report does list any companies of which you are a director. From there it's very easy easy to run a credit report on those companies and see what they owe. For many lenders this is an automated process as soon as they receive the application.

I had a bit of a lightbulb moment last year when one lender unravelled a clients associated entities and I received an email asking for clarification. This was less than a minute after I clicked the 'submit' button. This used to be a cumbersome manual process, not any more.

Credit reporting has had a lot of attention in the last few years, it's becoming a lot more sophisticated. Most lenders already disallow this loophole. It wouldn't surprise me if any remaining holdouts on this topic get shut down in the near future.

 

Yes, the individual would be the guarantor but not the borrower.

 

Some loan arrangement smack into a wall when its Mum, Dad and Son and son is the only one who can service. Lender may not touch it.