DSCR Loans for LLCs: Complete Guide to Business Entity Financing in 2026

Most real estate investors don't realize that taking a DSCR loan in your LLC's name instead of your personal name can save you thousands in taxes and protect your personal assets. But there's a catch: not all lenders allow it, and the ones that do have specific requirements.

In 2026, roughly 60% of DSCR lenders accept LLC borrowers, but only if you structure it correctly. Here's everything you need to know.

Why Put DSCR Loans in an LLC

Asset Protection

If a tenant sues you or someone gets injured on your property, they can only go after the LLC's assets—not your personal bank accounts, home, or other investments. This protection is worth the extra paperwork for most investors who own multiple properties.

Real example: An investor in Florida had a slip-and-fall lawsuit on one of their rental properties. Because the property was owned by an LLC, the lawsuit couldn't touch their other four properties or personal assets. Total exposure: limited to that one property and the LLC's bank account.

Tax Advantages

LLCs allow you to deduct more expenses and choose how you're taxed (sole proprietorship, S-corp, C-corp, or partnership). Most real estate investors choose pass-through taxation to avoid double taxation while still deducting:

• Property management fees
• Repairs and maintenance
• Travel to inspect properties
• Home office expenses
• Professional services (accountants, attorneys)

The average LLC investor saves $3,000-$8,000 annually in taxes compared to holding properties in their personal name.

Professional Credibility

Lenders, property managers, and vendors take you more seriously when you operate as "Smith Properties LLC" instead of "John Smith." It signals you're building a business, not dabbling in real estate.

DSCR Loan Requirements for LLCs

Entity Formation Requirements

Your LLC must be properly formed and registered in the state where you're investing. Most lenders require:

• Entity age: Some lenders want your LLC to be at least 12 months old. Others accept newly formed LLCs if you provide a strong personal financial profile.
• EIN (Employer Identification Number): Required. You can't use your SSN for an LLC loan.
• Operating agreement: Must be signed and dated, outlining ownership structure and management.
• Certificate of Good Standing: From your state, dated within 30-90 days.
• Business bank account: Separate from personal accounts, with at least 2-3 months of statements.

Lenders want to see your LLC is a real business entity, not a shell corporation you created last week.

Personal Guarantee Requirements

Here's the reality most people don't tell you: nearly all DSCR loans to LLCs require a personal guarantee from the owner(s). This means if the LLC defaults, you're personally on the hook.

Why? Because most investment LLCs don't have established business credit. You're borrowing against the property's income (DSCR), not the LLC's credit history.

The personal guarantee doesn't eliminate asset protection for lawsuits—it only applies to loan defaults. Big difference.

Ownership Structure Matters

• Single-member LLC: Easiest to qualify. You own 100%, you guarantee the loan.
• Multi-member LLC: Each member with 20%+ ownership usually needs to sign the guarantee. Some lenders want all members to sign regardless of ownership percentage.
• Series LLC: Accepted by some lenders, rejected by others. Call ahead.

Down Payment and Rate Differences

DSCR loans to LLCs typically require:

• Down payment: 20-25% for single-family rentals, 25-30% for multifamily
• Interest rates: 0.25-0.50% higher than personal name loans
• DSCR ratio: Minimum 1.0, but 1.2+ gets better rates

As of February 2026, typical LLC DSCR loan rates are:

• 1.0 DSCR: 8.25-8.75%
• 1.2 DSCR: 7.75-8.25%
• 1.5 DSCR: 7.25-7.75%

Compare that to personal name DSCR loans at 7.0-8.5% for the same scenarios.

Best LLC Structures for DSCR Loans

One Property Per LLC vs. Multiple Properties

One property per LLC (the "series" approach):

• Maximum asset protection
• Cleaner bookkeeping
• Higher costs ($800-1,500 per LLC formation, $100-800 annual fees per state)
• More tax returns to file

Multiple properties in one LLC:

• Lower costs
• Simpler management
• One lawsuit could expose all properties in that LLC

Most investors start with one LLC for their first 2-3 properties, then create separate LLCs as they scale.

Which State to Form Your LLC

You don't need to form in Delaware or Nevada. Those states are expensive and offer no real benefits for small rental property LLCs.

Form your LLC in the state where the property is located. Why?

• Lower formation costs
• Easier compliance
• Lenders prefer it
• You'll have to register as a "foreign LLC" anyway if you form elsewhere (double the fees)

Exception: If you're buying properties in multiple states, form a holding company in your home state, then create single-member LLCs in each property state.

How to Apply for a DSCR Loan as an LLC

Documents You'll Need

Entity documents:

• Articles of Organization
• Operating Agreement
• EIN confirmation letter
• Certificate of Good Standing

Financial documents:

• LLC bank statements (2-3 months)
• Personal bank statements (2 months)
• Personal tax returns (if personal guarantee required)
• Lease agreement or rental income documentation

Property documents:

• Purchase contract or property address
• Rent roll or lease
• Insurance quote

The Application Process

1. Form your LLC (if you haven't): 1-2 weeks depending on state
2. Open business bank account: Same day to 1 week
3. Get EIN from IRS: Instant online or 2 weeks by mail
4. Find a DSCR lender: 60% accept LLCs, so ask upfront
5. Submit application: Expect 3-5 business days for initial review
6. Underwriting: 2-4 weeks
7. Closing: 30-45 days total from application

Common Mistakes to Avoid

Commingling Funds

Never mix personal and business money. Pay yourself a formal distribution or management fee. Don't use the LLC account to buy groceries.

One investor lost their liability protection because they used the LLC account for personal expenses. The court "pierced the corporate veil" and went after personal assets.

Wrong Name on Title

The LLC must take title to the property—not you personally. If John Smith closes on a property but Smith Properties LLC is the borrower, you have a problem.

Work with a real estate attorney or title company that understands LLC transactions.

Not Maintaining the LLC

File annual reports, pay state fees, keep records. An LLC that's been administratively dissolved has zero liability protection.

Set calendar reminders for:

• Annual report due dates
• Franchise tax deadlines
• Operating agreement reviews

Tax Implications: LLC vs. Personal Name

Deductions

Both personal and LLC-owned properties can deduct:

• Mortgage interest
• Property taxes
• Depreciation
• Repairs and maintenance
• Insurance

But LLCs can also deduct:

• LLC formation and filing fees
• Business license costs
• Employer payroll taxes (if you have employees)
• Health insurance premiums (if structured as S-corp)

Tax Filing

• Single-member LLC: File Schedule E on your personal return (same as personal ownership)
• Multi-member LLC: File Form 1065 partnership return
• LLC taxed as S-corp: File Form 1120-S

Most real estate investors stick with default LLC taxation (pass-through) until they own 10+ properties or hit $500K+ in rental income.

Which Lenders Accept LLC DSCR Loans

As of 2026, these lender types work with LLCs:

Portfolio lenders: 90%+ accept LLCs, best rates DSCR-focused lenders: 70% accept LLCs Banks and credit unions: 40% accept LLCs, often want business relationship

Call at least 3-5 lenders. Ask specifically:

• "Do you allow LLCs as borrowers?"
• "What's the rate difference between LLC and personal?"
• "How old does the LLC need to be?"
• "Do you require personal guarantees?"

When NOT to Use an LLC

Skip the LLC if you:

• Own only one property
• Live in California (LLC fees are $800/year minimum)
• Can't afford the setup costs ($800-2,000)
• Don't want to maintain separate books and records

For your first rental property, buying in your personal name is usually simpler and cheaper. Add an umbrella insurance policy ($1-3 million coverage for $200-400/year) for liability protection.

Switch to LLC ownership when you buy property #2 or #3.

Converting Existing Properties to LLC Ownership

Already own rental properties in your personal name? You can transfer them to an LLC, but:

1. Check your mortgage: Most have "due on sale" clauses that technically allow the lender to call the loan if you transfer title. In practice, lenders rarely enforce this if you keep making payments.

2. Consider refinancing: Use a DSCR loan to refinance into the LLC's name officially.

3. Quit claim deed: Cheaper option ($100-500), but doesn't resolve the due-on-sale issue.

4. Talk to a real estate attorney: Worth the $300-500 consultation to do it right.

The Bottom Line

DSCR loans for LLCs give you asset protection and tax benefits for a small rate premium (0.25-0.50%) and extra paperwork. If you're serious about building a rental property portfolio, the LLC structure pays for itself after 2-3 properties.

Start by forming your LLC in the state where you're buying, get an EIN, open a business bank account, and find a DSCR lender that accepts LLC borrowers. Expect to sign a personal guarantee, but that doesn't eliminate the liability protection LLCs provide for lawsuits and claims.

The extra work is worth it when you're protecting a growing real estate portfolio.