For those looking to limit their financial liability and protect their assets, avoid direct ownership of a loan.

Read this simple Guide to learn how to do this effectively and responsibly.

  1. Use a Business Entity

One of the most common ways to avoid the ownership of the loan is the use of a business entity such as a limited liability Company or a corporation.

Benefits:

  • Safeguard your assets if you default on the loan
  • Establish a Business Credit Profile which is entirely separate from your credit.

How to do it:

  • First, create a state LLC or corporation company.
  • Establish a business bank account and apply for loans in a business name.
  • Keep separate financial accounts for business and personal activities.

  1. Set Up a Trust

A trust can hold your property and financial assets, including loans. Putting the property in a trust removes your name from the loan, while the trust terms maintain control.

Benefits:

  • Trust Offers You Privacy And Asset Protection
  •  This can be utilized as a part of estate planning.

How to do it:

  • Talk to a lawyer to establish the trust.
  • Make sure that the trust is adequately funded and handled legally.

  1. Use Non-Recourse Loans

A non-recourse loan is where you only risk losing the collateral if you default, but the lender cannot go after your money.

Benefits:

  • Protects your financial exposure.
  • Offers a cushion if the collateral falls in value

How to do it:

  • Learn about non-recourse loans and find lenders who provide them (usually for real estate investments).

  1. Partnerships or Joint Ventures

Joint Venture or Partnership — This is where multiple parties share ownership and liability for loans. It enables you to divide the financial burden.

Benefits:

  • Lowers personal ownership risk.
  • Takes advantage of the financial capacity of two, or more,  parties

How to do it:

  • Develop a legal partnership agreement that defines roles and responsibilities.
  • Avoid Direct Ownership of a Loan for a Business Partnership

  1. Seek Professional Advice

Understanding how loans are structured or how financing works can be complicated. Consider consulting lawyers and financial experts to make sound judgments.

Why it matters:

  • The right advice contributes to your establishment of legal entities or trusts in the right manner.
  • Ensures conformity with financial regulations.

Conclusion

To never have anything to do with a loan, planning ahead of time; or using the right planning strategies. Whether it be through either an LLC, a trust, or a non-recourse loan, there are pros and cons to each approach.