How does a bank loan work in the SCI family?

A Société Civile Immobilière (SCI) is designed for the purchase and management of a portfolio of real estate assets.

Popular with many French investors and families, it offers a number of significant advantages: flexible management, real facilities for passing on your assets in complete security, flexible governance, and more.

There are several types of SCI: classic, family, etc. The SCI familiale allows you to invest with family members (parents, children, cousins, spouses). The SCI familiale also makes it easier to pool property loans, which is useful for acquiring a property portfolio.

Let's take a look at all the advantages of the SCI familiale to encourage bank borrowing.

Why is it a good idea to borrow for a family SCI?

The SCI familiale allows several people from the same family to pool their capital to acquire a property portfolio. It is possible to set up an SCI with "no capital contribution". This means that the financial resources come from a bank loan.

It's simpler to borrow money via a family SCI than individually, because the partners' liability is indefinite and joint and several.

If a partner can no longer repay his share of the interest or capital, the bank can oblige the other partners to do so in his place. This provides the bank with additional guarantees in the event of a partner's default.

Also, the greater the number of partners (and the more creditworthy they are), the greater the SCI's borrowing capacity. It is therefore possible to borrow more easily and for higher amounts with a family SCI.

What are the different types of bank loans available to SCI families?

The purpose of a family SCI is to purchase one or more properties for furnished or unfurnished rental. Banking institutions make no distinction between taking out a loan as an individual or through an SCI.

An SCI can generally take out all types of bank loans, with the exception of:

• All subsidized loans, such as the PTZ (zero-rate loan)
• PEL (the loan obtained within the framework of a Plan d'Epargne Logement)
• Conventional loans

These two types of loan are reserved exclusively for private individuals.

Can a partner borrow as an individual?

Partners in an SCI can choose whether to borrow in their own name or via the SCI.

If the partners wish to borrow in their own name, each contacts a bank to apply for an individual loan. Once approval has been obtained, the partners contribute their borrowed capital to the SCI current account to purchase the property.

SCI shares are distributed in proportion to the contributions made.

Each partner pays off his or her own loan individually. If the property is rented out, the partner can repay his or her loan from the rental income, according to his or her share in the SCI's capital.

If the partners wish to borrow funds via the SCI, its manager must contact the company's bank to request financing. Once approved, the loan is paid into the company's current account.

Loan repayments can be covered by rental income. Failing that, the partners must fund the SCI's current account with the necessary sums.

What guarantees do banks require?

As with any property loan, the bank may require financial guarantees from the SCI partners. In most cases, these are :

• A mortgage guarantee: a property is mortgaged to a bank in the event of default. This means that the bank can seize the property and sell it to pay off the loan.
• A personal guarantee, usually in the form of a bond.

Banks sometimes require death and disability insurance to cover the occurrence of an industrial accident, disability or death.

What expenses can be deducted from your loan?

The SCI allows its partners to benefit from a major advantage: many expenses can be deducted from taxable income. For example, it is possible to deduct interest on loans taken out to acquire, maintain, repair or improve property purchased through the SCI.

Interest may also be paid during the tax period, even if it relates to a loan taken out in an earlier period.

This tax deduction scheme can significantly reduce your tax bill.

SCI founders and managers often need administrative, tax and legal support to meet all their legal obligations. Domiciliation companies offer them a prestigious head office address, as well as administrative and legal assistance to lighten their day-to-day workload.