As mentioned previously, lenders typically analyze unused lines as if they are fully used. For unsecured lines, lenders also assume it is being paid back in three to five years, and add to your actual debt service that theoretical principal payment. The larger the line of credit, the bigger the impact on your ability to qualify for additional debt.

For illustration, a $10,000,000 unsecured line that isn’t being used can add over $2,000,000 a year to your total debt payments in a lender’s analysis.

“It doesn’t stop there. Banks typically require the borrower to maintain liquid assets of one to three times the unsecured loan amount at all times,” Foster explains. “It is important to understand the effect that unsecured credit can have on your ability to obtain additional credit and plan accordingly.”


Being the beneficiary of a large irrevocable trust makes the beneficiary more creditworthy to a lender.


Beneficiaries to a sizable irrevocable trust often don’t have the borrowing power they believe they should have. Only when the trust itself is party to the loan do they receive full “credit” for the strength of the trust.

Trusts have rules that dictate when and how and to whom they pay distributions, and sometimes give significant discretion to the trustee for making other payments not scheduled. A bank will usually underwrite only what is specifically set to be disbursed or has been disbursed historically.

“Banks can’t force a trustee to make discretionary distributions for their own convenience,” Foster concludes. “Discretionary distributions are tough to underwrite against. Usually, the better they know you, the more flexibility you’ll get.”

This article was provided by Cresset Capital Management.

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