By William Gould, Legal Manager, United Trust Bank
United Trust Bank’s Bridging Department has considerable experience of lending to trusts. Although typically there will be additional hoops for lender and borrower alike to jump through, loans to trust structures are not necessarily as problematic as the parties often envisage. In this article we’ll look at what trusts are and what issues borrowers and brokers should consider when presenting such proposals to lenders.
What is a trust?
A trust is an arrangement which enables an individual or a company, the trustee, to hold certain assets on behalf of another individual or group of persons, known as the beneficiary. Unlike a company, the trust itself is not actually a distinct separate entity. Rather it is a legal relationship between the trustee and the beneficiary. It is worth noting that technically loans are made to the trustees rather than the trust itself. The trust will be governed by a trust deed which will set out the rules by which the trustee is required to act on behalf of the beneficiary.
What are the advantages of a trust?
There are two key advantages to be gained from a trust structure. Firstly, assets held pursuant to a trust are not legally owned by the beneficiary and will be protected in the event of the beneficiary getting into financial difficulty as creditors are likely to be prevented from going after the trust assets. Secondly, trusts offer potential tax advantages, enabling assets to be passed between family members in a more tax efficient manner.
What do lenders require?
Along with the usual due diligence that applies to all short term bridging loans such as why is the loan required, what is the security and how will the loan be repaid, there are additional points that need to be addressed when lending to a trust. The lender and their legal advisors will consider the type of trust structure, and the trust deed itself. ‘Know Your Client’ will be required on all trustees and beneficiaries and, where corporate trustees are involved, on their directors, together with constitutional and regulatory documents. The lender will also expect to see evidence in the trust deed that the trustee is permitted to apply for loans on behalf of the trust and that the trust has the requisite power to borrow and to charge its assets. All of this information will be needed in order to structure the loan and loan documentation in an appropriate manner.
Will all lenders loan to trusts?
In our experience, not all lenders will have the appetite for making loans to trusts. The additional complexities involved in lending to a trust, though far from insurmountable, mean that such loans are best suited to be made by specialist lenders with suitable knowledge and skills. They are not something which can be dealt with by call centres or tick box computer processing.
At United Trust Bank we pride ourselves on having the necessary expertise to give serious consideration to bespoke loans to trusts and we have a sound track record of providing such customers with prompt and cost-effective lending solutions. We are well positioned to assess the risks and benefits of trust lending on a case by case basis and we possess considerable credit and legal expertise in this area.
William Gould is a qualified solicitor in England and Wales