I have a consultancy company (L) where I have a small amount of cash sitting, that I want to use towards purchasing a property. However, mortgage lenders want a clean new SPV with a SIC code that is related to property (L has a tech consultancy SIC code)
I am being asked to create a new company (B) which will take a intercompany loan from L, and also borrow from a mortgage lender (M) to purchase a property (P). M will have first-charge on the property P of course as usual
My question is : how can I ensure that the fate of the property (held by B) is not linked to the fate of lender L (i.e. if Lender L needs to be liquidated in the future for some reason (say litigation or some other reason), how should the Loan from L to B be documented so that a litigation and potential cash crunch of the lender L cannot mean that the loan has to be repaid early by B
Am I right in saying that I have to do the following?
- The loan should be at arm's length between L and B - i.e. pay a market interest rate
- The loan needs to be a perpetual loan or at least a very long maturity like 25 years
Are there other considerations i need to know in this case?