Personal Investment & Financial Planning Q`s/Foreign loan


QUESTION: A foreign investor will loan me $15 million, 10 year term, 5% interest, is it high or low or reasonable?

How to transfer funding?

Do I need business bank account?

Which bank is safe for large amount?

ANSWER: Hello Jjsc,

There are few restrictions on foreign investments into the U.S.  You do not indicate whether you have established a legal entity to receive the loan, nor the purpose of the loan.  I assume it is for a business purpose and you would be wise to set up a company, such as an LLC, as the recipient of the funds, even if you are providing a personal guarantee.  This would also entail having a business banking account separate from your personal accounts.  This is helpful for accounting, cash controls, and taxes.   The best way to transfer the funds is via a wire transfer after you have established your business bank account.

In general, the 5% interest rate is reasonable, but the terms of the loan also influence the rate, e.g. is the loan secured by any assets?  Is it amortizing?  The yield on a ten year unsecured BBB rated corporate loan (that is the lowest investment grade rating) is about 4%.  Since this is a private loan it is reasonable to expect to pay more than a loan with an investment grade rating.

Any of the twenty largest banks in the U.S. would be safe for your proceeds, although the deposit is not guaranteed by the FDIC.  I suggest that you meet with a commercial banking representative at whatever bank you choose to discuss the best way to set up your account.  They will ask you about the source of the funds, about your business, and most importantly they can assist you in making sure that you are in compliance with any reporting requirements, in particular any tax withholding requirements on the interest you pay.  I assure you, they will be very happy to open an account for you and to invest the money until you need it!

Lastly, for a loan of this size, you should have a lawyer with experience in commercial loans prepare a loan agreement.  This protects both you and the lender. You should also discuss the transaction with the accountant for your business.

Hope this is helpful.  Good luck.

---------- FOLLOW-UP ----------

QUESTION: Thank you for answer.

My loan lender is working with his lawyer for loan agreement.
Should I hire lawyer for my loan agreement?
Two loan agreements?

I am going to become a real estate developer.
Is LLC better than S corporation?

My lender consider to drop 4% interest.
The loan amount is $15 million,
Should I pay total interest $6 million in ten years?
And return total loan to lender?

ANSWER: Hello again Jjsc,

There is only one loan agreement.  If the lender’s lawyer is drafting the agreement, and you are not experienced with commercial loan terms, it would be a good idea for you to hire your own lawyer to review the loan agreement.  That would not be very expensive.  In addition, the lawyer can help you decide whether the LLC or “S” corporation is the better choice to be the borrower of the funds.

The structure you choose depends on how you see the business evolving.  I have embedded the following link which I believe is a very good summary of the main differences between an LLC and “S” corporation.  They are both “flow through” tax entities, meaning that the gains and losses flow through directly to the owner(s) for tax purposes, as opposed to “C” corporations which pay tax at the corporate level before any distributions.

Real estate developers often put each property into its own LLC in order to “compartmentalize” the risk for each project.  If one property fails, it would not drag all of the other properties into a bankruptcy; only your equity (plus any loans you guarantee) in that project is at risk.  It is important to keep the bookkeeping for each property very clearly separated and each entity should have its own bank account.  Again, discuss with your attorney and / or accountant the best form for you.  The entity you set up should be the “borrower” under the loan agreement.

The 4% interest rate is a good rate for you.  And you are correct, if you never pay down the principal until the end of the loan term (after ten years), then you would pay $600,000 per year in interest and over ten years that is $6 million.  Interest is almost always structured to be paid either quarterly or semi-annually.  If you pay down the loan earlier, then you pay the 4% per year interest rate on the balance that is unpaid, reducing your interest cost.  When you are required to pay back the principal, and your options for pre-payment, will be spelled out in the loan agreement.

Hope this is helpful.  Good luck!

---------- FOLLOW-UP ----------

QUESTION: Is this development loan apply to amortization?
If yes, the total interest paid should be less?

Hi Jjsc,

A development loan will usually start with a period during which the funds are drawn down as needed according to the project schedule. This significantly reduces interest cost compared with borrowing all of the money immediately.  

During this period, interest will begin to accrue on the amounts that are borrowed, and it may often be capitalized as part of the project cost, i.e. interest during construction is added to the principal outstanding, quarterly or monthly usually.

It is usual for there to be amortization of the loan once the project is complete and generating cash to service the loan. The amortization schedule may also assume a long term refinancing at some point. (Development lenders are often different from long term lenders.)

And yes, you pay less interest if you amortize the loan because you only pay interest on the principal that has not been paid back

Hope this is helpful.   Good luck.

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John Guilford Kerr, CFP, CFA


I can answer questions related to personal financial planning, asset allocation, private equity investment analysis, fixed income, mutual fund, ETF, and stock questions, estate planning (basic), education planning, insurance planning, and business financial planning.


I have thirty-eight years of experience in finance, in the U.S. and internationally, for both public and private corporations. I have specialized in personal and small business financial planning and investment advisory services since 2005.------ - ten years commercial banking, New York, Paris, Houston, Charlotte, Atlanta---- - six years treasurer of a publicly traded health care company, Philadelphia----- - six years international project finance (Bechtel), San Francisco, Manila, London----- - five years head of international hotel development (Hyatt), Chicago---- - eleven years personal financial planning.----- Registered Investment Adviser, Hawaii---- FINRA General Securities Representative - Series 7---- FINRA Uniform Combined State Law - Series 66---- Resident Producer Insurance License, Hawaii-, Accident and Health or Sickness, Life, Variable Life and Variable Annuities

CFA Institute of Hawaii---- Certified Fiancial Planner Board of Standards, Inc-----. National Association of Personal Financial Advisers----- Financial Planning Association----- National Association of Tax Professionals

Project Finance Yearbook - 1997 / 1998 "Manila Water & Sewerage System Concession"----- "The Road To Helsinki, An Analysis of European International Relations Leading to the Conference On Security and Cooperation in Europe"' published 2015.

Certified Financial Planner, Certified Financial Planner Board of Standards, Inc.---- Chartered Financial Analyst, CFA Institute----- Certificate in Financial Planning, Boston University---- Masters in Foreign Affairs - University of Virginia---- Bachelors of Arts, Government - Ohio University

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