Buy-to-let investment
Financing a purchase through an SCI, under IR or IS: what the bank truly requires
Mortgage through an SCI: partners’ joint guarantee, debt-to-income ratio, current-account contribution, security. What secures the deal, under IR or IS.
The bank lends to the SCI but assesses the partners: it requires each of them to provide a personal joint and several guarantee and recalculates their debt-to-income ratio, whether under IR or IS. It also expects a contribution to the partners' current account that is blocked and subordinated, and articles of association that permit borrowing. Under IS, the file often falls within the professional market, supported by a balance sheet and more frequently requiring real security.
By Sandy MASCART, mandataire d'intermédiaire en opérations de banque et en services de paiement ORIAS 26000541 sous le mandat de CDV PATRIMOINE & ASSURANCE (ORIAS 14005573)
Key points
- The bank lends to the SCI but assesses the partners: it examines each person's individual file, in addition to that of the company.
- The personal joint and several guarantee required by the bank erases the allocation by shares: each partner is liable for the entire debt.
- As soon as a personal guarantee is requested, the maximum debt-to-income ratio applies to each partner, whether under IR or IS.
- The partners' current account only counts as a contribution if blocking and subordination are signed: without them, it is a debt repayable at any time.
- Under IS, depreciation can wipe out the accounting result: have the bank read the self-financing capacity, not the result alone.
In an SCI, the lender lends to the company but assesses the partners: personal and joint and several guarantee, and the debt-to-income ratio recalculated for each of you. Avoid the two errors that cost a financing: articles of association that block the borrowing, and a contribution that is not one. The complete process: business loan and SCI. The choice between IR or IS is decided beforehand, with an accountant.
An SCI borrows in its own name, the lender assesses the partners
The company borrows, but the lender examines each partner, then the company. Everything is added up.
Article L. 313-1 of the Consumer Code extends the regime of residential credit to private legal entities whose credit is "not intended to finance a professional activity". An SCI that rents out a dwelling falls within this scope in principle: cooling-off period and suspensive condition included.
Article L. 313-2 excludes loans financing a professional activity (furnished rental on a regular basis, property dealer). Check under which regime the loan offer is issued: a professional offer made as a matter of course to a patrimonial SCI is open to discussion before signature.
The personal and joint and several guarantee: what you are signing
Alone, each partner is liable for the debts in proportion to their shares. The lender requires a joint and several guarantee: each of you becomes liable for the entire debt.
The SCI therefore does not protect your assets against the lender. Before signing, read:
- the scope: principal only, or interest and penalties as well;
- the duration, and its fate if the company sells or if you transfer your shares;
- the handwritten mention, a condition of validity;
- the proportionality to your assets and income;
- the annual information due by the lender.
The guarantee reappears in the next file: see the wall of the 4th property.
The debt-to-income ratio returns via the partners
As soon as it requests a guarantee, the bank assesses the partners as borrowers and recalculates their debt-to-income ratio.
Le texte fixe un plafond de ratio ; il ne dit pas comment se compose l'assiette lorsqu'un revenu locatif entre en jeu. Cette composition reste une politique d'établissement.
- En vigueur depuis le
- Source
- Décision D-HCSF-2021-7, art. 1er — Légifrance
Rents are included according to each bank’s method: see the debt-to-income calculation for an investor.
SCI taxed under IR or IS: what changes for the financing
| Credit criterion | Civil company taxed under income tax | Civil company taxed under corporate tax |
|---|---|---|
| Contact within the bank | Most often the retail market | Frequently the professional market |
| Documents expected for analysis | Partners’ personal files, leases, articles of association | The same, plus balance sheet, income statement and forecast |
| What the bank reads from the result | A share that is reported on the partners’ tax return | A result retained within the company, which is only reported in the event of a distribution |
| Effect of accounting depreciation | Not applicable | It reduces the result: the assessment must be based on the cash flow capacity |
| Guarantee usually required | Often a guarantee similar to that of an individual | More often a real guarantee on the property |
| Partners’ guarantee | Personal and joint and several | Personal and joint and several |
| Proposed term | Generally aligned with the residential loan | Sometimes shorter, following the model of professional financing |
| Composition of the contribution | Partner’s current account, share capital | Partner’s current account, share capital, and attention paid to equity |
Under IS, depreciation reduces the result: ensure that the cash flow capacity is assessed, with a one-page note signed by the chartered accountant.
A share capital contribution that the lender recognises
The true vehicle for the contribution is the current account of a partner, which is credible under three conditions:
- blocked for the duration of the loan by an agreement, otherwise it becomes a demand liability;
- subordinated to the lender’s claim;
- of justified origin: savings, gift, or resale.
Unequal contributions? The articles of association and the accounting records must reflect this: see the borrowing capacity of a couple.
A guarantee chosen for resale
A guarantee from an institution is less frequently granted to a limited liability company, especially one subject to corporate tax: a mortgage or a preferential charge regains the upper hand.
Compare: guarantee, mortgage or preferential charge. A mortgage over several lots complicates the resale of a single one: see the release. State your exit strategy before the guarantee is taken out.
Which lenders finance a limited liability company?
What makes the difference is the contact person: the retail market for individuals subject to income tax, often the professional market for entities subject to corporate tax.
Two regional banks from the same group may give opposite responses. For entities subject to corporate tax, the bullet loan is often used.
Articles of association drafted for borrowing: six points
- Company purpose too narrow: limited to a single property, it blocks the next purchase.
- Company purpose that overreaches: commercial activity or furnished lettings change the nature of the company.
- Powers of the manager: if unanimity is required to borrow, prepare the minutes before the notary.
- Approval clause adapted.
- Variable capital: reservations with certain lenders.
- Accounting kept up to date, for the second loan.
When the SCI costs more than it returns
- First investment, alone: higher fees, no gain on the credit.
- Joint purchase with no succession planning concerns: a well-drafted co-ownership agreement is often sufficient.
- Short-term resale: everything hinges on the capital gain.
- Circumventing a debt-to-income ratio block: the guarantee nullifies the effect.
Calculate the associates' commitment: the instalment formula. Submit the SCI structure by telephone, with the draft articles of association in hand.
Create your file before registering the company.
Sources
Read next
- How much can I borrow? Mortgage capacity in Lyon
- Financing a fourth rental investment: why the bank stops, and how to proceed Refusal at the third or fourth rental investment: what is truly blocking the bank, and the levers that restart the financing, in the right order.
- Rental income: how the bank calculates your debt-to-income ratio as an investor Weighting of rents, classical or differential method, disposable income: why two banks calculate an investor's capacity differently.
- Borrowing as a couple: the true calculation of your joint borrowing capacity, and how to protect each partner Borrowing as a couple: what the bank actually adds up, what it examines next, and how to protect an unequal contribution in the deed.
- Buying to house your student child: what structure will the bank finance? A lent property, a tenancy, a shared residence or a purchase in the child’s name: the structure the bank will finance, and the post-studies plan.
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Passer au calcul : Borrowing capacity