Should you Sign on Behalf of your LLC, FLP or Trust?

It’s all about the Banks!

So what really is the deal with Banking?  I mean it is about as clear as mud, especially now after an $11 Trillion dollar government bailout!  What is happening with the banks?  Why aren’t they lending?  Why didn’t we let them fail?  Why do they have so much power?

These are all GREAT questions, and I hear them everyday.  Surprisingly, the answers are a bit more complicated than we might imagine. In fact, too complicated for this post, but suffice it to say that the banking system in the United States (and the world for that matter) is inextricably tied to the government.  Meaning that Goldman Sachs (or Goldman Tax as some call it) is at least as relevant to how our government functions as is the Congress, The Supreme Court and even the President.   Some would say more.  And if you want to go down that rabbit hole a bit, Please see The Mind of Money Blog and review the Reference Videos Tab.

The Banks are Coming!

But let’s get to what the current state of things really means for you and me today.  The answer is MORE intrusion in our personal lives if we choose to continue down the path of financing our lives with DEBT.   Very few of my clients have been successful in borrowing money over the past 2 years.  Of the few that have, I am beginning to notice a disturbing trend.  Specifically, I see banks being more aggressive about getting copies of every piece of personal documentation in your life.

That means your Trusts, your company documents, your investments, basically anything they think may help them later on if they have to try to collect from you.  Why are they doing this?  Well basically they are now finding out that a huge portion of their loan portfolios are incomplete, poorly executed, or just plain wrong.  And you can guess what upper management within the bureaucracy of the banks is doing right now.  They are mandating that ANY NEW LOANS be given only if the bank also gets the borrower to sign on behalf of not just him or herself, but everything tied to them. For you that means, your companies, your trusts, your estate planning, your business, your wife, and even your kids if they can get it. Basically everything!!  What we are seeing is the beginning of a move to TOTAL LIFE CONTROL by the banks – If we let them.

Stay out of their control!

My advice to the clients who have been asked is, DO NOT COMPLY.  Anyone loaning you money has every right to determine if you are a good borrower, take collateral and due their diligence.  That’s fair.  But when a bank wants your entire life committed to them for a loan they are making on a single piece of property, then it begins to look much more like loan sharking than banking.

So what are your options?  The most conservative and life changing is to make a choice to minimize the amount of debt you allow in your life.  What this means is that if you need a line of credit to operate your business every single year, then likely there is something in your business that needs to be looked at.  It means that if you need to borrow to buy that new boat, car, plane, etc. you may want to consider renting, chartering or going into partnership for those types of assets-without borrowing.

But Doug, this is unreasonable in a society built around debt, where assets are priced out of reach unless I can borrow the money.  You are correct, it is an unreasonable request – especially in our debt-based money supply system (see my post at The Mind of Money if you want to understand how money is created through debt)  But I believe, now more than at any point in our lives, these are times which demand a position of unreasonableness.

Review Your Assets

So what should you do?  I suggest a total review of all your assets and debt as follows:

1. Investment or Income Properties.  Assess every asset and loan you have.  Make a determination RIGHT NOW of which assets make 100% financial sense to keep and which ones do not.  To keep it I suggest an asset must meet 2 criteria.  Criteria A – It’s real and current Fair Market Value is MORE by at least 25% than all debts and loans related to it, and Criteria B – It must have POSITIVE CASH FLOW.  If you have an asset that does not meet both criteria, then you should consider selling it, walking away from it, or modifying it.
2. Personal Residence.  For many this seems like an exception.  It’s not.  The criteria are the same; however, the application is slightly different.  Criteria A is modified only slightly; It simply must be worth MORE than your debts on the property.  Criteria B is applied by comparing the monthly costs of your home with your personal cash flow.  What was affordable to you 3 years ago STILL needs to be affordable to you today.  Additionally, I would recommend that you compare what you are paying on your mortgage with what an equivalent house would cost to rent.  Renting is often a much better deal, especially when housing prices are static or falling, or when you are in the $1 million and up house price range.
3. Personal Use Assets.  This means your cars, boats, airplanes, jet skis, etc.  These are tricky as we often find that we are maintaining more stuff than we ever imagined we would have.  My suggestion is that you take an honest look at all of these types of assets and ask yourself a simple question “If you were to buy this today, would I pay cash at its current Fair Market Value?”  If the answer is no, then you should sell it on eBay or wherever IMMEDIATELY.  If you wouldn’t buy it today, then why would you keep it?  Cash out and free up your mental and physical space.  If you have a loan on the asset and it is not worth what you owe, then you need to decide if you are going to hold on to it, sell it and pay the difference, or give it back to the bank.  I would suggest that if you have made the decision to give back other assets like real estate, and your credit is already damaged, that you also take this opportunity to give back all the other stuff as well.  If you are cleaning house, then clean the whole thing.

Let go of Debts & Risky Financial Assets

If you take this opportunity to heart, expect you will at first encounter internal emotional resistance as you look seriously at your financial life. Many assets will feel heavy to you, and it will feel like you can’t let them go. This is normal. My advice is that you begin with the smallest and easiest decisions first. Once you get a bit of momentum, and you start to feel the lifting of the emotional weight, you will find the strength to cut the bigger things. My advice is to begin it! You will surprise yourself with just a little willingness to look into your own emotional lock box around your money.