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I was considering do a business loan with a friend of mine,

I was considering do...

I was considering do a business loan with a friend of mine, using his corporation as the borrower. He will state he is using the loan to expand his business, however, I am unsure where the funds might possibly be used for personal purposes. Can I file a UCC1 that will also give me an interest in all assets, including his personal residence, should he default? If so, is there anything we should be aware of, or ways to minimize the risk

Lawyer's Assistant: What state are you in? And have you consulted a local attorney?

CA

Lawyer's Assistant: Has anything been officially filed? If so, what?

No

Lawyer's Assistant: Anything else you want the lawyer to know before I connect you?

Although his business purpose may state one thing, I am very concerned he might use it improving his personal residence, or for other reasons than stated. Also, I can do a trust deed on their home, however, I prefer to make this a business loan with his corp.

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Answered in 21 minutes by:
3/14/2018
Attorney Wendy
Category: Legal
Satisfied Customers: 491
Experience: Member at Keefer & Keefer LLC
Verified

Hello. My name is ***** ***** I am an attorney. I am working on a response to your questions and should have that to you shortly.

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When entering into financial arrangements with friends and family, you are already on the right track to avoid the pitfalls that often occur - formally documenting the loan with signatures and clear terms. If this loan is for his business, the loan agreement itself should state that the funds are restricted to that use and that any personal use of loaned funds will be considered a default allowing the lender (you) to demand full and immediate payment of any outstanding principal - at your option (meaning you could choose to allow him to keep making payments or demand full payment, your choice). Filing a UCC-1 would give you a security interest in the specified personal property of either your friend - or if you want to keep it truly business - his business assets. The filing of this document gives notice to other creditors that you have a claim to this property unless and until your loan is repaid. You will want to include in any loan agreement that the business is giving you a security interest in property and specify what property (it can include existing and that acquired in the future) and you may want to do a UCC search to make sure no one else has any existing filings on that property (the agreement would also have the borrower warrant that is the case - no existing liens or security interests exist). The other thing you need to consider if the loan will be to his business - which I assume is a legal entity formed and separate from him individually - is whether you want him to sign a personal guaranty providing that if the business can't pay, goes out of business, etc. he will continue to be individually responsible for the amount owed. This provides you the greatest protection, but it will be up to you to determine whether to pursue that course given your goals with this loan and your relationship with this friend. I always err on the side of more protection and more formality because then everyone knows exactly what is expected and you avoid - to the extent possible - any misunderstandings in the future.

I hope this helps. If you need further assistance, please reply to this email. If I answered your questions and provided excellent service, I would greatly appreciate your 5 star rating at this time.

​Please note: This information is for educational purposes only and is not legal advice. No course of action is being proposed and no attorney-client relationship or privilege has been formed as a result of this conversation.

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Customer reply replied 1 month ago
Wendy, are you still there?
Customer reply replied 1 month ago
I have a follow-up question.

Absolutely; let me know what question(s) you have.

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Customer reply replied 1 month ago
If they sign a personal guarantee with this business loan, then will their real property, such as their personal residence, be subject to the UCC lien as well.

A UCC does not cover real property, you would need a mortgage which would be subordinated to whatever mortgage, if any, is existing on the home already. Getting real property as security is much more complicated, but could be done if that was the route you and the friend decided to take. If they sign a personal guarantee and default on the loan, and you sought a judgment against them based on that default and obtained that judgment, you could seek to execute (collect) the judgment by forcing a sale of the house, but if it is their primary residence they will likely have a homestead exemption such that an actual sale likely doesn't occur; instead you would have a lien for the amount you are owed that would be satisfied after any sale does occur and after any other lienholders and mortgages that came before you were fully paid.

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Customer reply replied 1 month ago
If they personally have a rental property, or vacation home, or they are rehabbing a flip, that might be okay?

You would still need a mortgage and not a UCC filing, but they would not be able to claim the homestead exemption if it is not their primary residence. Any real property though becomes security for a debt via a mortgage.

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Customer reply replied 1 month ago
Thanks Wendy, where are you located and how do I get in contact with you, should I want a consultation? Additionally, what are your rates?
Customer reply replied 1 month ago
Oh, and do you know if these questions and answers might be available in a transcript?

Actually, I'm not sure if you can get a transcript; I will see if I can find out. I am physically in South Carolina. If you decide you want me to help with any actual documents, you can reply to this conversation, which should be saved to your account and we can determine a price.

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Customer reply replied 1 month ago
OK. thanks for your time. Have a nice day.

You are very welcome; just let me know if you need anything further.

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Happy Friday. I just wanted to check in to see if there was anything more I can do to help answer you questions.

Attorney Wendy
Category: Legal
Satisfied Customers: 491
Experience: Member at Keefer & Keefer LLC
Verified
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