An entity borrower is a business — typically an LLC, corporation, partnership, or certain kinds of trust — that takes out a loan in its own name rather than in the name of any individual owner. Because the entity is a separate legal person, it signs the note, pledges the collateral, and carries the repayment obligation on its own books. That separation drives almost everything else about the loan: how the lender underwrites it, what paperwork you have to produce, whether you personally stand behind the debt, and what compliance work continues after closing.
Business Structures That Can Borrow
Most entity loans go to one of four structures, and each comes with its own trade-offs on liability, taxes, and management.
- Limited liability companies are the most popular choice for real estate investors. LLCs shield members’ personal assets from business debts while letting income pass through to individual tax returns, and their management structure is flexible.
- Corporations, both C-corps and S-corps, offer strong liability protection and a legal framework lenders know well, but they operate under stricter governance requirements, including boards of directors and formal shareholder votes.
- Partnerships let multiple parties share ownership, management, and debt. Limited partners’ exposure is generally capped at their investment; general partners carry broader liability.
- Trusts, particularly revocable living trusts and land trusts, can borrow in specialized situations. Lenders usually accept a trust certification — which identifies the trustee and their powers and confirms whether the trust is revocable or irrevocable — rather than the full trust document, which contains private estate planning terms.
Series LLCs are a newer option. A parent LLC creates isolated “cells,” each with its own assets and liability shield. About twenty states authorize the structure, but the law varies enough between jurisdictions that lenders scrutinize these deals carefully. Even routine questions, like how to name the series on a financing statement, can turn into problems. If you’re borrowing through a series LLC, expect additional legal costs.
How Lenders Underwrite an Entity Loan
Individual mortgage underwriting revolves around the person: credit score, W-2s, tax returns, debt-to-income ratio. Entity underwriting revolves around the property or business generating the income.
The workhorse metric is the Debt Service Coverage Ratio, or DSCR — the property’s net operating income divided by the total loan payments. A DSCR of 1.25 means the property produces 25% more income than the debt service requires. Most lenders want to see at least 1.0, and many require 1.2 or higher for a comfortable approval. One practical benefit for borrowers: DSCR loans typically don’t require pay stubs or personal tax returns.
Larger commercial lenders — including Fannie Mae’s multifamily program — often require the borrowing entity to be a single-asset entity formed for the sole purpose of owning the financed property. The lender reviews the formation documents to confirm the entity can’t acquire other properties, commingle funds, or guarantee anyone else’s debts.1Fannie Mae. Single-Asset Entity – Fannie Mae Multifamily Guide Isolating the collateral protects the lender if trouble develops elsewhere in the owners’ portfolio.
Pricing runs differently, too. Interest rates on entity loans tend to be higher than on individual mortgages because the lender can’t rely on any one person’s full credit profile. Down payments are steeper — commonly 20% to 35% of the property value, versus as little as 3% for a conventional individual mortgage. The exact terms depend on the entity’s track record, the property type, and whether an owner personally guarantees the loan.
Documents the Lender Will Require
Before funding, the lender needs to see that the entity legally exists, is in good standing, and has properly authorized the loan. Missing one document can push closing back by weeks.
The foundation is the entity’s formation document — Articles of Organization for an LLC, Articles of Incorporation for a corporation — filed with the state’s Secretary of State. Partnerships file a comparable certificate. These documents establish the entity’s legal name, its registered agent, and its basic structure.
Next come the internal governance documents. For an LLC, that’s the Operating Agreement, which spells out management, profit distribution, and who has authority over financial decisions. For a corporation, it’s the Bylaws, which govern the board, shareholder voting, and officer roles.
Every entity borrower also needs a Federal Employer Identification Number, the nine-digit number the IRS assigns for tax filing and reporting.2Internal Revenue Service. Instructions for Form SS-4 Business credit agencies use the EIN to track the entity’s payment history, and lenders verify it before proceeding.
Finally, most lenders require a Certificate of Good Standing (sometimes called a Certificate of Existence) from the state where the entity was formed. This confirms the entity has kept up with required filings and paid the fees or taxes it owes. If your entity has lapsed because of a missed annual report or unpaid franchise tax, the lender will not close until you fix it.
Who Can Sign for the Entity
An entity can’t sign anything itself, so a person has to sign on its behalf. Whether that person actually has the authority matters: getting it wrong can delay closing or leave the loan unenforceable.
The standard document is a borrowing resolution — a formal declaration by the owners or directors that a specific individual is authorized to sign the loan documents, pledge collateral, and bind the entity to repay.3SEC. Corporate Resolution to Borrow / Grant Collateral A corporation’s board adopts the resolution at a meeting or by written consent. An LLC’s members or managers approve it under the Operating Agreement’s rules.
The lender’s attorney cross-checks the resolution against the formation and governance documents. If the Operating Agreement says financial commitments above a certain dollar amount require a unanimous member vote, the resolution needs to reflect that vote.
For larger commercial deals, and particularly government-insured loans, lenders often require a legal opinion letter from the borrower’s counsel confirming that the entity is validly organized, in good standing, qualified to do business in the property’s state, and that the signer has proper authority.4HUD. Opinion of Borrower’s Counsel The attorney’s professional reputation stands behind that letter, which is why lenders rely on it.
Personal Guarantees and the Limits of Limited Liability
This is where the “limited liability” pitch collides with commercial lending. Even though the entity is the borrower on paper, most lenders require one or more individuals to personally guarantee the debt. That’s especially true for newer entities, smaller loans, and borrowers without a track record of successful repayment.
A personal guarantee lets the lender pursue the guarantor’s personal assets — bank accounts, investment accounts, other real estate — if the entity defaults. In practice, the guarantee pierces the very liability shield the entity structure was designed to provide. When ownership is spread across several people, the lender may require guarantees from every owner above a certain ownership threshold.
Limited Versus Unlimited Guarantees
Not every guarantee carries the same risk. A limited guarantee caps the guarantor’s personal exposure at a specific dollar amount. If the entity borrows $1 million and you sign a limited guarantee for $200,000, the lender can’t come after you for more than that, no matter how large the shortfall. An unlimited guarantee doesn’t mean infinite liability — the lender still can’t collect more than the debt actually owed — but your personal exposure equals the full outstanding balance plus interest accrued during collection.
Experienced investors often negotiate limited guarantees that decline over time as the entity builds equity or demonstrates reliable cash flow. The type of guarantee you sign matters more than most first-time borrowers appreciate.
Non-Recourse Loans and Bad Boy Carve-Outs
Larger commercial loans, especially those securitized through commercial mortgage-backed securities (CMBS), are sometimes structured as non-recourse. If the entity defaults, the lender’s only remedy is to take the property, not to chase the owners. These loans generally require lower loan-to-value ratios, often 65% to 75%, and strong income-producing properties in major markets.
“Non-recourse” is rarely absolute, though. Almost every non-recourse loan includes carve-out provisions, often called “bad boy” guarantees, that convert the loan to full personal recourse if the borrower engages in specific prohibited conduct. Common triggers include filing for bankruptcy, committing fraud or misrepresentation, allowing environmental contamination, letting required insurance lapse, transferring the property without lender consent, and commingling entity funds with personal accounts. Tripping any one of these can eliminate the non-recourse protection entirely, so read the carve-out language carefully before signing.
Beneficial Ownership Verification
Federal anti-money-laundering rules require banks to identify the real people behind every entity that opens an account or takes out a loan. Under the Customer Due Diligence rule, financial institutions must identify and verify the beneficial owners of any legal entity customer when a new account is opened.5eCFR. 31 CFR 1010.230 – Beneficial Ownership Requirements for Legal Entity Customers The lender will ask for the name, date of birth, address, and identification number of every individual who owns 25% or more of the entity, plus at least one individual who controls its operations. If the ownership information changes later and the lender has reason to check, the verification can be triggered again.
The Corporate Transparency Act originally required most small businesses to file beneficial ownership reports with FinCEN, but a 2025 FinCEN interim final rule removed that reporting requirement for domestic companies. As of 2026, only entities formed under foreign law that have registered to do business in the United States must file these reports.6FinCEN. FinCEN Removes Beneficial Ownership Reporting Requirements for U.S. Companies and U.S. Persons The bank-level verification under 31 CFR 1010.230 still applies, so expect to provide ownership details to your lender even though the FinCEN filing no longer applies to domestic entities.
Interest Deduction Rules for Entity Debt
How your entity structures its borrowing affects how much of the interest you can deduct at tax time, and the rules differ from what individuals deal with.
An individual deducts home mortgage interest only as an itemized deduction on Schedule A, subject to loan balance caps.7Internal Revenue Service. Publication 936, Home Mortgage Interest Deduction Entity borrowers deduct interest as a business expense. For pass-through entities like LLCs and S-corps, that expense flows through to the owners’ returns; for C-corps, it reduces the entity’s own taxable income. The individual mortgage caps don’t apply, but a different limitation does.
Under Section 163(j) of the Internal Revenue Code, a business’s interest expense deduction is generally limited to 30% of its adjusted taxable income for the year, plus any business interest income it receives.8Internal Revenue Service. Instructions for Form 8990 Interest above the cap isn’t lost — it carries forward — but the limit can still cut into the current-year benefit of borrowing through an entity, particularly on highly leveraged properties.
There is a significant exception. Entities with average annual gross receipts of $30 million or less over the prior three-year period are exempt from the Section 163(j) limitation for tax years beginning in 2026.9Internal Revenue Service. Revenue Procedure 2025-28 Most small and mid-size entity borrowers, especially single-property LLCs, sit comfortably under that threshold and can deduct their full interest expense. Larger operations should model the limitation with a tax advisor before taking on new debt.
Keeping the Entity in Good Standing After Closing
Closing isn’t the finish line. Lenders expect the entity to stay in compliance for the life of the loan, and letting the entity’s legal status lapse can trigger a default even if every payment is current.
Most states require an annual or biennial report to the Secretary of State, along with a filing fee. Fees range from nothing in some states to several hundred dollars in others, and some states add a separate franchise tax. Miss a filing and the entity falls into bad standing, which can strip its ability to enforce contracts, undermine its liability protection, and put it in breach of the loan covenants.
Lenders also require the entity to maintain insurance on the financed property. Coverage requirements depend on the loan and the property, but typically include property, general liability, and business interruption insurance, with additional coverage for flood or earthquake exposure where relevant. A lapse in required coverage is a default waiting to happen.
Set calendar reminders for every state filing deadline and every insurance renewal. A $50 annual report or a lapsed policy is trivially preventable, and it’s the kind of oversight a lender is willing to enforce against.