Should I buy the building through a separate property-holding company, and should my other business entities guarantee the loan? – North Carolina

Short Answer

Often, a North Carolina commercial purchase is structured with a separate property-holding entity (commonly an LLC) as the borrower and owner, because it can help isolate real estate risks from operating-business risks. However, many banks still require personal guarantees and sometimes require guarantees from related entities, depending on cash flow, collateral, and underwriting. Any guarantee should be treated as a major negotiated term because it can pull other entities (and sometimes the owner personally) into liability beyond the building itself.

Understanding the Problem

In North Carolina, a business owner planning a bank-financed commercial real estate purchase often asks whether the building should be owned by a separate property-holding company and whether other related entities must guarantee the loan. The decision usually turns on how the lender underwrites repayment, how risk should be separated between the real estate and operating businesses, and what the loan documents require at closing and at balloon maturity or refinancing.

Apply the Law

North Carolina generally recognizes that properly formed entities can own property and enter contracts in their own names, which is why lenders commonly lend to an entity that will hold title to the building. But a guarantee is a separate contract that can create liability for the guarantor beyond the borrower, and North Carolina requires certain promises—like a promise to answer for another party’s debt—to be in a signed writing to be enforceable. In a typical bank loan, the main forum for enforcement is the loan documents themselves (note, deed of trust, guaranty), with real estate collateral recorded in the county Register of Deeds where the property is located.

Key Requirements

Clear borrower/owner structure: The deed and loan documents must match the intended owner (often the property-holding entity) so title, insurance, leases, and lender covenants line up.
Enforceable guarantees in writing: If a person or another entity guarantees the borrower’s debt, the guaranty must be documented and signed, and the scope (full, limited, “bad acts,” or specific carve-outs) matters.
Lender underwriting support: The bank typically requires financial and operational documents to support repayment and may condition approval on cross-guarantees, cash management, reserves, or other credit enhancements—especially when the loan has a balloon/maturity date.

What the Statutes Say

N.C. Gen. Stat. § 22-1 (Promise to answer for the debt of another must be in writing) – A guaranty generally must be in a signed writing to be enforceable.
N.C. Gen. Stat. § 55D-26 (Real property records for entity name changes/mergers) – If an entity holding title changes its name or merges/converts, a certificate may need to be recorded in the county land records to keep the chain of title clear.

Analysis

Apply the Rule to the Facts: Here, the purchase is a bank-financed commercial deal with a long amortization and a balloon/maturity date, which means the lender will care about both (1) the building as collateral and (2) the borrower’s ability to refinance or modify later. Using a separate property-holding entity can help keep liabilities tied to the building from spilling into operating companies, but if other entities (or the owner personally) sign guarantees, those protections can shrink because the lender can pursue the guarantors if the borrower cannot pay.

Process & Timing

Who files: The buyer/borrower entity and the lender’s closing team. Where: The county Register of Deeds where the property is located (recording the deed and deed of trust). What: Deed to the buyer entity; deed of trust securing the loan; guaranty agreements (typically not recorded); entity documents and lender closing certificates. When: At closing; lender conditions must be satisfied before funding.
Underwriting package: The bank commonly requests entity formation documents, good-standing evidence, operating agreement/authorizing resolutions, personal financial statements, business financial statements, tax returns, rent roll and leases (if applicable), operating statements, insurance information, and an appraisal/environmental diligence package. The exact list varies by bank and property type.
Balloon/maturity planning: Because the loan may require payoff or refinancing at maturity, the loan documents often include ongoing reporting covenants (annual financials, rent roll updates, insurance renewals) and may restrict transfers, new liens, or changes in ownership that could complicate a future refinance.

Exceptions & Pitfalls

“Separate LLC” does not automatically mean “no personal liability”: If the owner signs a personal guaranty, the lender may pursue the owner even if the borrower is an LLC.
Cross-entity guarantees can spread risk: If operating entities guarantee the real estate loan, a default can expose operating cash flow and assets, and it can also create internal conflicts about who pays and who controls decisions.
Owner-occupancy is usually a lender policy issue: For non-government-backed bank loans, “owner-occupied” requirements and thresholds are typically set by the bank’s credit policy and the loan term sheet, not by a single North Carolina statute. The loan documents should be reviewed for any occupancy covenants and reporting requirements.
Title and entity housekeeping matters: If the property-holding entity later changes its name, merges, or converts, recording steps may be required to keep land records clean, which can matter at refinance or sale. See N.C. Gen. Stat. § 55D-26.
Guarantee scope can be broader than expected: Some guarantees are “full recourse,” while others are limited or triggered by specific events. The written guaranty controls, and North Carolina generally requires it to be signed to be enforceable. See N.C. Gen. Stat. § 22-1.

Conclusion

In North Carolina, buying a commercial building through a separate property-holding company is a common way to separate the real estate from operating-business risk, but guarantees can re-connect that risk if other entities (or the owner personally) agree in writing to answer for the borrower’s debt. The most important next step is to review the bank’s term sheet and draft loan documents early and confirm exactly who must guarantee, what the guaranty covers, and what must be delivered before closing and before the balloon/maturity date.

Talk to a Real Estate Attorney

If a commercial purchase involves a separate property-holding company, personal guarantees, or cross-entity guarantees, careful structuring and document review can prevent surprises at closing and at balloon maturity. Our firm has experienced attorneys who can help explain options and timelines. Call us today at [919-341-7055].

Disclaimer: This article provides general information about North Carolina law based on the single question stated above. It is not legal advice for your specific situation and does not create an attorney-client relationship. Laws, procedures, and local practice can change and may vary by county. If you have a deadline, act promptly and speak with a licensed North Carolina attorney.