Page 21 - Loan Structure Solutions

tity could purposely drain the entity of assets to avoid having to meet
the banks loans. Therefore, they want controlling parties to take
responsibility for the debt.

Most banks will seek guarantees from all Trustees (where the Trustees
are individuals) or all directors of a Corporate Trustee. I have seen
some banks ask for guarantees from all beneficiaries as well (e.g.
anyone that has received a distribution in the past two years).

Consider who will need to provide a guarantee when setting up your
structures as it might be better to only have one director of the Trustee
Company (for example) so that a remaining spouse’s borrowing
capacity is preserved. Longer term credit planning can be useful in this
regard. Most guarantees are joint and several which means each
individual guarantor is responsible for the entire debt. This is important
to be aware of, if investing with friends or family.

17) Hybrid & Unit Trust

Not all lenders will lend to a hybrid or unit trust – in fact only a handful
will. The reason for this is that unit holders could on-sell their units in
the trust to a third party and this might affect the lenders capacity to act
upon any guarantees. There are rumours that one bank actually
suffered loss because of this very fact.

Hybrid trusts are even more unpopular with lenders than unit trusts.
Very few lenders in Australia accept hybrid trusts as borrowers and for
this and many other reasons, I would caution anyone considering using
these entities.

18) Not all lenders are going to be good

You must choose your lender wisely when taking out a loan in an
entities name. Some lenders can deal with these applications without
any extra hassle. Other lenders will make it very hard work and ask a

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