Discussion:Borrower On Loan Paperwork For an S-Corp

When borrowing money for non real estate property (in my case client list) that will be put into an S-Corp that you own, remember to put your name as the borrower on the bank paperwork and then lend the money to S-Corp so you get shareholder basis. I almost didn't do it this way, b/c the bank populated the paperwork with the S-Corp's name. If I understand correctly, the shareholder would not get basis for that debt unless it's money lent to S-Corp by the shareholder.

Your point is well taken but if the bank was going to make a corporate loan and would not require personal guarantees, I am not sure basis would be as important as limiting your personal liability. Uncle Sam will only co-guarantee you for 35%, but in a total collapse of your company, lack of personal guarantee might gain you a 100% benefit. It's Saturday and the cynic in me is popping out.

I am sure they require personal guarantee, so you are correct that the money should be lent to you, not the company.

You are correct. The bank required a personal guarantee from me, but I realized that the S-Corp funding needed to be coming from the shareholder to get the basis. There is a building as well that will be held by a LLC taxed as a partnership with my wife. In that case, the bank loan is made to the LLC, but we'll get basis based on non-recourse debt? Either way, I believe that the S-Corp basis rules require money lent by the shareholder as the way to get that basis. I'm surprised that the bank did not recommend it that way knowing it was for an S-Corp. This is a bank that specializes in lending to accountants and they handle these deals frequently!