Alternative Financing Today: Hard Money to Conventional Loans

An Asset Based Lending "FAIL"

2011-02-09T12:04:00.000-06:00

It's not very normal to write about a funding failure, but there was a good lesson I learned in a recent effort, that I thought I would pass on.

A very good and respectable business brokerage group had found a buyer for a long established manufacturing firm here in NE Wisconsin. The trouble was, despite having good credit and an excellent industry background, the buyer couldn't find a bank willing to finance the purchase. Can't really blame the bank, as this particular business had been hemorrhaging money over the past decade. Once the world leader in its niche, the business was a shell of its former self. Not a lot to work with there, at least in terms of traditional financing.

But the buyer had a turn-around plan. The seller was pleased someone was interested in the business and was willing to consider a percentage of seller financing, but obviously wanted as much money as possible.

The solution we usually offer in this situation, is what is known as a "sale-leaseback" of the equipment. For those of you who don't know what that is, it is this: Basically, an investor who is comfortable with a certain industry will order an appraisal of the company's equipment. They are interested in the stuff that companies use to make, move, or process other things with. In established companies, that stuff is usually paid for, an asset.

Now, this company did have in hand an older appraisal from a couple of years ago; at that time, the value of the "stuff" was set at about two million dollars. Now, you would think that, ok, there is decent value for this company's "stuff", and no matter how bad the economy is, and how poorly the company was doing, you'd think its gotta be worth at least half that, right? That was my assumption, the assumption of the buyer, and the assumption of the seller. We figured we'd be able to work it out.

Now, A sale-lease back lender uses a formula something like this; if something is worth say a hundred thousand dollars given a normal time frame to sell it, (industry term: "Orderly liquidation value"), it is probably only worth 50K if it was hauled off to an auction ("forced liquidation value").

That is the number this type of lender will use as a value. Then the lender will purchase the equipment at a percentage of that value - which can be 50 to 80 percent. There is the money for for seller. Then the lender will turn around and lease the equipment to the buyer until the lease term is up, and when that happens the buyer owns the equipment. In the meantime, the buyer is paying the seller in a separate note for the difference. Everyone is happy, including me, who arranged it all, and earned a tidy fee for my services.

Then the appraisal came back - oh, how can I put this nicely? - completely in the toilet.

The value of the equipment, due to its age and to its custom nature, wasn't even 1/10th of its former value. The buyer backed off, because he realized he may be overpaying for the business. The seller backed off, because if immediate capital was the goal; they realized they could probably do better closing the business and hauling the equipment off to an auctioneer. You have to feel for the poor business broker, too, who brought the two together, suddenly realizing that perhaps he had a business that he couldn't sell to anyone, that is,unless they were independently wealthy and a glutton for punishment. Pity poor me poor me too; who lives for getting good things done and helping people, and being a hero, well I had ultimately helped no one. As my kids put it; this was a complete FAIL.

The lesson I learned; equipment is not equipment is not equipment. A bulldozer may be used by any number of entities across the US. A specialty piece of equipment, no matter how wonderful, or originally expensive, or functional - is just that, a specialty piece, and likely won't be of much value at all, in an asset based lending deal.

Record Fall

2010-11-15T14:10:00.000-06:00

I've been bad about posting here, but this is because we have had a very busy Fall.

The most closings have occured with private money, most under 200K, and most around 12%. However we were able to help secure 500K for one client at 6.5%, with a credit union, and a 1.7M funding last week with a local bank, (5.5% locked for 5 years), so the conventional side is still possible, but the deal does have to be very strong to get done.

We are up at bat now with several equipment financing and re-financing projects. From 75K to 750K - I will let you know how they go. We recently were accepted into a national association (NAELB - National Association of Equipment Leasing Brokers), which has been a wonderful way to get connected with direct lenders for folks who need to get some equipment financed. In case you haven't noticed, banks aren't exactly falling all over themselves to do that kind of thing.

As I contemplate the upcoming holidays, with the year drawing to a close, I must admit that I do have a great deal of satisfaction; we have been able to help many people who came to us, and believed in us. A lot of the things we do just can't be done any other way, and in many cases the successful closings had a profound effect on people's lives. What a neat way to support my family. I have many things to be greatful for this Thanksgiving. Here's wishing you and yours the same!

Hot Summer...

2010-07-15T15:39:00.001-05:00

It continues to be a hot summer here in Wisconsin, which I personally think is wonderful. It has also been very busy with smaller, (under 1M), short term transactions (2 years is the average), that keep the lights on. We have a couple of really large projects, one multi-million dollar, multi location refinance, a couple others in the 1.5-2M range, but so far, anything with a lot of zeros, most especially if the request has anything to do any kind of construction, has been really challenging. We haven't had a closing in that realm this year - YET, that is. The bottom line is, if you haven't shown really positive numbers in the past three years, 2009 included, (and that's a tall order for just about any business I know of), you can expect your loan request to be turned down by 5 or 6 funders before you may find a fit. But we're getting to nearer to a few closings that will be quite a feather in our cap, and when those happen, I'll be sure to let you know about it.

Oh, as long as I am at it, if you are a private investor, I encourage you to look up "American Association of Private Lenders", it is a great new organization that is sure to be at the forfront of best practices and advice in our industry. I joined recently, and their magazine "Private Lender" is full of good advice.

Small Balance, Short Term Purchase Order Financing, Handled!

2010-04-21T16:09:00.001-05:00

We closed a loan last week for a Wisconsin contractor that needed to purchase product for a local job. Trouble was, the distributor gets the parts they needed from an overseas manufacturer, and wouldn't stick out their necks for 15K. He had to pay them upfront. Of course the contractor's customer wouldn't pay for the job till it was done. These days its hard to come up with any kind of cash, let alone 15K to purchase parts that wouldn't be paid for till 30-60 days later.

But the contractor's AR was in good shape, with very good customers, and we had no problem getting a private investor to cut a check that they could take to the bank. The private investor couldn't have been more happy with the rate their were gong to earn over the next 60 days, and contractor got to order the parts he needed. It was probably the quickest, slickest deal we ever closed,(3 days start to finish).

For what its worth, I did do some research to see if there was an institution out there that did small balance commercial funding like this -to no avail. If anyone reading this knows of one, I'd sure like to know about it. In the meantime if you or a client of yours is in the same kind of quandary, give us a jingle; we may be able to help! And if you are an investor who would like to benefit from double-digit returns over short periods of time, let me know!

How to Submit a "Quickie Question"

2010-01-25T10:18:00.004-06:00

I call them "Quickie Questions", and I use the technique every single day. I fire off email questions to my favorite lenders in a very brief format, in just a couple of sentences, asking if they have interest in a certain loan scenario. Not all lenders have a front man or woman with this ability, but I have ones that do. I absolutely HATE filling out application forms. I give them what they need and they respond with a "YES, proceed with the usual paperwork." or "NO". Of course, after they see the paperwork it could still turn into a "NO", but at least I didn't have to do all that paperwork just to find out.

I encourage borrowers or brokers to do the same with White Knight. But there is a right way and a wrong way to do it. Here is an example of the wrong way, an actual email I just got today:

"i need funding for Business Acquisition financing 2-2.7 m what are terms fees and condition. Thank You"

This was my reply:

"Hello ____,
Generally, if you have money to put down, have good credit, have experience in the business you are acquiring, and the property is cash flowing, you can get terms as low as 5.8% which are fixed for 3 years amortized over 25 or 30. If you want longer fixed periods of 5 or 10 years, the rate creeps up. Fees are entirely lender-dependant, from 0-4%. My fee for services for something like this is usually around one point, but this is negotiable if lender points come in too high to make sense. Of course you are asking a very open ended question, and loans in my world are so dependant on your own characteristics and business characteristics that even "yes" answers to all of the above could result in an outright denial. I am happy to discuss your scenario over the phone and I may be able to determine if you have a do-able deal in a very short conversation. please call me at ____"

So the bottom line here is, we really need more to go on. Short emails like this are a waste your time...If you don't want to talk on the phone right away, email is fine, but please try to include the information below: (and please be as detailed as you are comfortable in being. Know that we take privacy and confidentiality very seriously. We would never share your information with anyone without your permission.)

1)the location of the project, 2) the loan amount, 3)what you are contributing to the deal, 4)what you want to use the money for, 5)how long you need it, 6)how you intend to pay it back, 7)what is the collateral and what is it worth?

If you present this, I can usually determine very quickly whether we can help or not, and give you feedback on how to proceed. Also, if I get a lot of the same questions all the time, I do try to address them on our website. Please check that over for all kinds of information.

Here's to making our days more efficient and productive!

Great Commercial Rates Available!

2010-01-11T17:06:00.005-06:00

I admit it, I usually focus on non-bank funding since the banks all but froze up, but I recently discovered a very nice small balance commercial loan program available through a national bank. Under this program, which will make loans under $500K, amortized over 30 years, I got quoted rates as low as 5.8% fixed for three years, 6.5% for five years, and 7.6% for ten years. The rate is credit score driven so will be higher given lower scores.

I was quoted these rates for $375K loan to refinance a small (8 unit) apartment building in NY, a good point to note because not many lenders like apartment buildings these days... Our fee to pkg & deliver the funding on this deal was 1.25%.

I don't know about you but so far this is making for a Happy New Year!

On Being "LinkedIn"

2009-12-28T17:10:00.004-06:00

Have you heard of "Linkedin"?

I describe it to those unfamiliar with it as "Facebook for Professionals". What I like most about it, is that folks who know you or have done business with you - at present, or over the years, can go on the record for you and vouch for you, which is a very important in my business - which is chock full of scoundrels and liars only too happy to separate you from your hard earned money. I also use it for research and to post information, such as this announcement, which I posted just today:

Discussion: Active Lenders LinkedIn: Seeking Accredited Investors

"White Knight Commercial Funding is seeking Accredited Investors with whom we may establish a relationship for our clients who have executed Reg D 505 and 506 private placement offerings. For the SEC's definition of what makes an 'Accredited Investor', please see:

http://www.sec.gov/answers/accred.htm

The private placement opportunity we are involved in currently addresses a product that will revolutionize medical and food service sanitation procedures.

Over six years and 6M has already been expended in product development and testing, funding is for final phase market penetration. The company has achieved global partnerships with major corporations both in licensing and distribution which will ensure demand for the product well into the future.

Please reply privately."

You never know what will come out of the ether when you post things on the internet, but so far I must say, LinkedIn has worked pretty darn well for me. I tell anyone considering working with a commercial lending outfit that isn't a recognized Bank - see if the guy or gal you are working with has established business relationships, see if they have a history, look for a LinkedIn profile. I always invite any one new to White Knight to do just that - and feel free to call any of my or my partner's connections. 98% of them are folks whom we have done business - and ask them for their opinion. There is no better way to engender faith in an organization than to speak to someone who can speak openly about their experience and provide a reference. If you haven't done so, I encourage you to check it out! You will be glad you did.

The Skinny on Securities Based Lending

2009-12-02T15:51:00.007-06:00

You will see a plethora of advertisements on line everywhere these days regarding Stock Loans or Securities Lending. I have been getting a lot of questions about it, and I want to answer a few of them here. White Knight offers this type of loan and if you own stocks it is absolutely the best way to go!

It is a great instrument for many reasons. This is perfect for someone who has capital tied up in the stock market. Of course, the values are really low right now. If you need some cash, for what ever reason, this instrument will allow you to borrow against your stocks, up to 80% of the value, at very low interest rates, for very low fees. The nice part is that you don't have to sell your stocks to get at that cash, when their value is so low. This way you can get the money you need, and ride the market back up at your leisure. That is the short version, here is the long one: (grab a coffee, I get long-winded here)

The terms “stock loan”, “stock-secured financing” or “securities based lending" all refer to the type of lending program where the borrower’s securities (stocks, bonds, mutual funds or options) are pledged as collateral for a loan. These are “non-purpose” loans and no lien is placed upon any asset such as real estate or personal property. The securities alone stand as collateral for the debt. Proceeds of the loan may be used for any purpose except to purchase or carry securities.

Interest rates for these programs are usually between 2.5% and 4.5% and the loan-to-value ratios offered may be as high as 80% of the securities value. The factors that determine the rate of interest and the amount of the loan are how actively traded and liquid the securities are on the open market. The loan term is typically between 3 and 10 years with a fixed interest rate and “interest-only” payments due to the lender. Funding can take place in just a matter of days. A credit report is not required nor is any income or employment verification done.

Not all types of securities may be used as collateral. The securities must be able to be "free traded" without any restrictions and the borrower must be able to prove that they are not a 10% or greater holder, director or executive officer in the company that is the issuer of the securities. Retirement funds (401k's, pensions, etc), do not qualify for this type of program.

These are also “non-recourse” loans so if the borrower does not make the interest payments when due or fails to repay the principal at the end of the loan term, the lenders only option is to keep the securities that were pledged as collateral.

Should a loan default occur the loan is cancelled and the borrower keeps the money received from the loan and the lender keeps all interest in the securities. The loan default is not reported to any credit bureau or placed in public record.

The terms are offered to the borrower and upon agreement by both parties the loan documents are drawn up and arrangements are made for the securities to be transferred to a holding company. A final value is then given to the securities based on an average of the closing price of the collateral for three consecutive market days. This is called the “strike price”. The borrower then transfers the ownership of the securities to the lender. The borrower still retains all beneficial interests in the securities and will receive any dividends or interest that accrues from the securities during the term of the loan.

At the end of the loan term, the loan may be renewed, refinanced or paid off. If the loan is paid in full at the agreed upon term, the exact number of shares or collateral initially pledged is returned to the borrower.

When choosing a lender here are a few items the borrower may want to consider prior to entering into this type of arrangement:

How long has the company been in business? The company we work with pioneered this type of lending.

What are the backgrounds of the principals in the company? Full background materials are furnished prior to the borrower agreeing to anything.

What assurances can the company give that the full amount of collateral will be returned to the borrower upon completion of the loan term? Our lender can assure 100% return.

What is their track record of returning the pledged collateral to the borrower at completion of the loan term? Our lender has a 100% return history.

Does the lender have past client references that the borrower can speak with? Our does, and they are gladly supplied.

Benefits:
Low fixed interest rate
Interest only payments
No liens on any other asset
Quick funding
Non-taxable event
No credit check
Loan is not reported to the credit bureaus
No verification of income or employment
Non–recourse loan
Borrower receives dividends or interest that may accrue from the securities during the term of the loan
At the end of the loan term the exact number of shares or collateral initially pledged is returned to the borrower

Drawbacks:

Lock Outs - no early loan pay off is allowed

So there you have it. In today’s tightening credit markets, Securities Based Lending offers a funding option that may be worth exploring.

Small is Beautiful - Micro Loans

2009-10-17T18:29:00.004-05:00

We recently closed a loan many brokers would scoff at. Sure, it was for only 30-thousand dollars, but it was a beautiful thing. Why?

Well, for one thing it was an incredible deal, the borrower was able to purchase an ENTIRE two story building commercial building for that price, and it was a nice one too! Wow, the deals out there to be found by buyers seem to be getting better and better. After the deal closed, he expressed his sincere appreciation. He said that because the loan amount was so low, he thought no one would take him seriously.

It was a beautiful thing because the investor who put up the money - well, he was more than happy to have first lien position of a great building which is sure to appraise for a couple hundred thousand more than what he loaned against it. It was such an obviously good bargain, he didn't even require an appraisal. And the investor is earning a very nice return on his money! Six months interest, collected up front, isn't a bad thing, either.

It was also a beautiful thing, because from inception to close, the deal only took a couple weeks to close, despite the fact that a new LLC had to be formed to hold the real estate, etc.

What is also neat, is the fact that when this borrower performs on this loan, and makes a clean exit, he will be elevated to an internal thing we do with proven borrowers - he gets "preferred status", meaning his chances of getting a new loan services are much improved, and it will likely mean lower interest rates and fees, because he will have proven himself a good borrower, which is all a good investor really needs. The same investor may even fund the same borrower again and again, because he knows the borrower will fulfill his obligations.

I personally love deals like this, for many reasons, but probably most because it is the kind of transaction that we cut our teeth on; if it wasn't for the very first small private commercial loan we made not long ago, which I think was for about 130K, which literally "saved the farm" for a hardworking Wisconsin Dairy Farmer, White Knight may never have gotten it's start.

OH Investor Needed...1.8M for Oil Rig Purchase

2009-07-02T17:38:00.002-05:00

Have a client in the Midwest looking to purchase an oil rig to service its own leases. Very experienced borrower in the business 30+ years. The rig they are trying to purchase is very new and they are getting a steal of a deal. Local bank isn't in the mood so they are trying to attract a private investor. You and I know that oil prices will rise again, and every well they drill they get a nice %. If you have the cash and the patience this should be a great opportinity. Email for details.

TX Investor Needed...1.6M

2009-07-02T17:32:00.002-05:00

At White Knight we always strive to match private investors with borrowers in the same state. We got a great loan request today for an entity that runs a 100% occupied apartment complex, looking for 1.6M for a straight refinance. You can earn 8% on this deal plus 3% at close, and your investment will be protected with first lien position on an fine income generating property. They will be happy with a two year deal. Please contact me if you are interested in this deal and we will send you the particulars.

To Fee or not to Fee, that is the Question

2009-05-27T09:18:00.003-05:00

There are funding institutions and brokers out there who will tell you until they are blue in the face that there is no such thing as a funder who doesn't charge up-front fees. This is probably largely due to their need to defend the fees they have historically charged, and due to folks like me who actively promote the fact there ARE funders who don't charge up-front fees. As with most arguments, this boils down to semantics.

Let me tell you the truth and I will keep it as simple as possible:
1)
There ARE funders who will review a file and underwrite it with out expense beforehand, (yes they are hard to find, but they do exist), BUT there will ALWAYS be 3rd party fees (such as to appraisers, risk assessors, title companies) that the borrower is expected to shoulder in pursuit of their loan. Its that simple.

The skilled broker will work with both the borrower and the funder to estimate these expenses and build them into the loan proceeds, so that the client is not "short" at the end. I personally don't like it when a borrower is expected to cut a blanket check to the funder to start the "due diligence" process. Don't like it, but have done it. I PREFER to have these expenses discussed BEFOREHAND, and for the checks to be cut to any 3rd Party directly. This eliminates any possibility the funder is benefitting in any way from these fees.

2)
There ARE brokers who will review a file and prepare it for funder review with out expense beforehand, and there are ALWAYS expenses associated that process, but it is up to the broker whether or not to ask for compensation for this extensive amount of work. White Knight does not. We believe in putting our money where our mouth is and getting paid a success fee out of closing. If we don't think a loan is going to go anywhere, we won't waste your time or ours. Sometimes it takes a good deal of time to figure this out, but we will do that at our expense if the project is worthy or compelling. At least you are not out any money to find this out.

We do ask clients for a small amount of money once a funder is found that has issued terms that are acceptable and who has a) satisfied the borrower of its ability to fund and 2) satisfied the borrower of its intent to fund. A good rule of thumb for this fee is 1/10th of 1% of the loan amount, but with the bigger loans this is complete overkill so we usually just discuss what is appropriate with the borrower ahead of time. Never any surprises and total transparency is what you get when you deal with us.

A little patience pays off...

2009-05-06T09:29:00.003-05:00

I am happy to say a private investor stepped up to take the loan scenario that I posted previously. It is my second loan for this investor, who is giving White Knight another chance since the first loan he did with us over a year ago is panning out nicely. He agreed to loan the borrower approx 80K (53% LTV) at 13 % interest and two points, for two years. He is not requiring an appraisal. If you want to earn similar returns on your cash, contact me for a referral and lets get going!

Investor Needed

2009-04-23T15:40:00.003-05:00

I have a great loan scenario for someone who wants to "get their feet wet" in the world of private lending, with out using too much money. I have a borrower in Madison, WI, willing to put up a nice income-producing property (duplex, upper & lower) worth about $163K, for a 70K loan. The property is free and clear. That loan amount is 47% of the value of the property. You would have first lien position, just like a bank. You would earn 16% on your money in the first year. Try making that on the stock market right now! Borrower will pay all closing costs. We do all the paperwork. You just cut a check and sit back and earn that nice interest. Please call me if your would like to have more information!

The Delights of Skype

2009-03-10T17:24:00.003-05:00

...sure it's been around a while now, but I just never made the effort to get to know this service until I started doing work for a London based borrower looking to finance the purchase of a mega-resort in the Mediterranean. He is a big fan of it, and because all of a sudden I started having dealings with folks all over this planet, because of my dealings with him, and noticed all of those guys used it...I took the plunge.

...well, not much of a plunge really, I think the head set cost me $20 at the local Office Big Box. I got home, downloaded the Skype software in about 2 minutes flat, and it rang! It was my friend Ivan. Holy cow I couldn't believe the clarity of the call, no noise, a barely discernible delay.

If you do any business with folks overseas, do yourself a favor and get a Skype address, its the neatest thing since sliced bread. Oh, and if you want to use it to contact me, give it a whirl at:
"white.knight.cf"

Financing Home Developments

2009-02-05T08:25:00.005-06:00

I wanted to share with you some recent communiques between myself and an experienced broker in SC area, to give you a feel for what is happening in the South right now as far as financing home developments goes. I have been working with an experienced developer in SC with multiple successful developments to their credit. With bank capital dried up, they can't get the funds to do what they do, and are suffering for it. (parenthesis are mine)

"(names removed), thanks to the introduction by Marianna, I extend greetings from Johns Island, SC which is my operational home base as a ten year established business development and commefcial finance consultant. I am also a Sr. VP with the Sigma Capital Group, a "boutique" investment bank primarily focused on the energy/renewable energy, clean-tech and Eco-Green RE sectors.

In addition, I am a Managing Co-Partner in the Home Builders Consulting Group.

Yana advised me of your immediate need to secure re-financing for your projects in --- and in the ---- areas of SC and, as I sure you are aware, this moment in time is far from favorable with regard to ANY type of residential development and certainly not for "spec" home construction.

I have included a couple of paragraphs that I recently sent to Yana:

**"As far as your SC Developer client is concerned with those projects in ---- and in ----... IF he has a sufficiency of verifiable PRE-SALES then there MAY be a way of securing HARD MONEY funding. You mention an airplane.... who owns it, what type and how old? What is it worth? How much is owed on it?

You advise that current projects are "worth" $2.675-million. What is their "Quick Sale Value". Deduct out present bank debt = "equity in project". How much money do they need and for how long?"**

I currently have three fairly sizeable MPC's in The Carolinas that have been "stalled" due to (Bank name deleted) "pulling the plug" without notice on the respective developers seven months ago even though those folks were in no sense delineqnent or behind schedule. Now, they are in "deep s_ _t" because they have zero cash reserves with which to engage with any new lender let alone cover the required cost of updated MAI Appraisals.

The once favored "Senior Living/ 55+ Lifestlye" market has CRASHED because prospective buyers are now either "upside down" on their present "metro home" or their available equity, assuming they could find a buyer at today's reduced value, does not provide them with sufficient profit to engage in a new purchase + cost of physical relocation. Sad, but true.

(I know ) ------, a major web publisher of recreational and lifestyle real estate developments, and his advertiser base and daily traffic count has dwindled to a perilous point.

Even upscale modular brands such as ---- Homes have been forced to "shutter" Plants that were once thriving.

Is there "hope" in this current misery? Depends on how you define "hope"! I do have an investment group that will selectively acquire "distressed" developments at a price that enables the developer to escape with their hides almost whole but even those "vultures" are thinking twice about deals they have already issued LOIs on.

My "friends" at ---(name of bank) ---are now refusing to even consider residential "spec"/developer deals because they are holding too many delinquent projects.

Yana advises me that you are at least succeeding to find TWO buyers per month which is better than most! I assume that with a legitimate pre-sold purchase contract with a mortgage pre-approved buyer that your existing bank relationship will fund the construction loan.
You are more than welcome to call me to discuss. Best regards,

Richard Cooper
Richard Cooper Consulting
3759 Mary Ann Point Road
Johns Island, SC 29455

My clients responded to the email with this:
" Richard, Sorry it took a few days to respond . . . --- and I have a 14 acre site that is zoned for 46 ranch condominiums. We would like to get started moving dirt somewhere between summer and fall with a twelve month development period before units are ready for closing. So the first closing would not be until mid 2010. We are well aware traditional bank funding will not be available in this time frame so we are in search of private funding that offers more flexibility. If this is something that you think you can be of help with we would like to set up a time meet and go over more of the details. Thanks "

Which was followed with this:
Richard, --- and I have a 14 acre site that is zoned for 46 ranch condominiums. We would like to get started moving dirt somewhere between summer and fall with a twelve month development period before units are ready for closing. So the first closing would not be until mid 2010. We are well aware traditional bank funding will not be available in this time frame so we are in search of private funding that offers more flexibility. If this is something that you think you can be of help with we would like to set up a time meet and go over more of the details. Thanks

Which was folowed with this:
----, many thanks for your reply. To give you some idea of how bad things have gotten I have a client (very established and profitable hotel development/operations group) seeking financing for a new ---- hotel in ---- GA. Seven months ago, pre-approved at 75% of COST. Lender pulled out prior to closing citing internal liquidity issues. Now down to two lenders who are offering 65% of COST which client can live with but with a "nasty" clause that they are having a problem with.... Personal Guarantors from each of the Stock holders who own 10% or greater of the project in addition to 8-Points (total) and pre-pays of $20K.

The word "condo" = a stake in the lender's heart, particularly if a new development. The only way of appealing to a lender with this type of project is to be able to demonstrate and PROVE a continuum of STRONG demand for that type of property within the subject market from potential buyers who can be MORTGAGE APPROVED BY LENDER. In addition, 75% of the available units need to be PRE-SOLD to approved buyers. In absence of that criteria then the best I can offer would be a land refi, assuming you already own the 14-acre site. The loan would be based on up to 50% of the MAI Appraised "As-Is" value as further DISCOUNTED to arrive at a price that the lender believes would attract a buyer within 120-160-days if they had to foreclose. I have one lender who might have interest and their combined points and rates will be "Welcome Guido and Vinnie!". Although they add points and interest into the loan amount and defer payment for the 12-month loan term (which is helpful) on a loan of $10-million (for example) the borrower would be paying back a total of almost $13.25 million. Another issue that has to be factored is "Declining Values". Value basis today $XXX. What % reduction is probable within the next 12-months? Regardless of points and interest rates, ANY new residential construction anywhere in the Country requires the developer to have 40% of COST available to invest in their project and that assumes there are very little market related negatives in effect or projected. PLUS, the requirement for plenty of confirmed PRE-SALES. "

I hope you enjoy these examples of what is happening now across the country...as financing dries up, I have found it helpful to cooperate with brokers across the country to get deals done...if you are a loan officer or broker who would like be included in our network, please contact me. If you are a private investor or lender and are interested in taking a look at this or other loan requests we now have, please contact me!

Borrower Beware...

2009-01-22T16:22:00.003-06:00

Well, if I was three days GREENER I may have fallen for a really slick scam. There are a LOT of commercial lenders out there who are not lenders at all. This particular group cultivated me and my business for months, slyly "turning down" loans, etc. Something didn't smell right and lucky me, I have friends very adept at looking up information on people. Here's you TIP of the DAY...don't send a dime to anyone that you haven't checked out with a minimum of FOUR references, plus court case background checks. Also, lucky me, I am forming great relationships with HONEST brokers and REAL lenders so the chances of getting taken are slim. (No one is more paranoid than me right now, with all the first person first hand FRAUD running rampant). There is no way I'd allow you to get involved with an outfit that doesn't pass muster. And I don't expect you to do business with me, without checking ME out. References Happily Given! Nuff said!

2009-01-09T16:17:00.002-06:00

Well I've been vewy vewy bad about keeping up with posts. So let me do a couple quick ones... Our most recent loan request was from a publicly owned east coast company needing 5.8M to purchase another company in the south, with no money down. Normally that scenario would never fly because no investor likes to get involved with a borrower who isn't putting their money where their mouths are; but I was surprised with a loan offering just today from a hedge fund in CT. I guess the fact that the sellers were willing to take a hefty 2nd, and the company is profitable as all get-out, posting 2 and 3 million dollar net profits in the last couple of years, may have something to do with it.

Preliminary terms are: a five year balloon prices at 11%, interest only, with a 2 year prepayment penalty (3%), and three points to the investor. A hefty due diligence fee of 25K was negotiated down to 15K, and the borrower tells me today to proceed. So I tell the hedge fund its a go, and they say, send in the Executive Summary. I'll let you know how it plays out, but in these days of few companies getting funded for hardly anything, it sure is nice to have an offer. I'll let you know how it goes.

The other successful offering we got just a couple days ago were for a east coast special needs housing remodeling contractor...they needed 500K working capital to fund materials, etc. for 3 million dollars worth of contracts in hand.

We got an investor to bite on the deal, and these were his terms: 1) form a corporation (borrower was operating as a sole propriatorship), and the terms were: a 500K secured revolving credit facility priced at 12% interest only, for a term of two years, with an option to renew for an additional one (1) year term, provided the Borrower is not in default, at a cost of one percent (1.0%) of the gross amount of the loans. There was one point to the lender at close, plus a 1 point facility fee. This particular investor also requires a 10K due diligence deposit. We'll post how that one goes as well! Cheers to you for a happy and profitable New Year!

2008-10-22T13:00:00.002-05:00

Boy, busy time in this business. Since I started this, its been three weeks and three more loans in the door. But I promised I would write about what kinds of deals we have been able to do and I will start with a simple one.

Banks absolutely hate to do loans for taverns. Our client found out the hard way even though he had great income and great credit. He was half owner of a country tavern in NE Wisconsin, and he needed to cash out the property, which was owned free and clear, so that he could pay off his partner and get sole ownership.

With a little advance planning, which meant being able to prove the tavern had a good income - (therefore every penny made went in to a bank account before it went anywhere else) - for a period of six months, we were able to secure a local investor to do the loan, which was structured as a two year, interest only, no-prepayment penalty instrument. It took about three weeks to close and here's how it broke down:

Loan amount: $113,000
Collateral value $170,000
Loan to Value ratio: 66.47%
Benefit to Investor: 1st lien position on the land & building asset.
2 points ($2,260.00) at close.
Interest earned (2yrs) $27,120.00
$2,260 closing fees+ $27,120.00 = ROI $29,380, an effective annual percentage rate of 13%.

Closing costs, including 2% plus a packaging fee for White Knight, came to under $8,500, and that included the cost of appraisals, titlework, recording fees, etc.

Our client was happy he could buy out his partner, the investor was really happy with the investment, (just saw him the other day and with the beating he just took on the stock market, he says he wishes he would have done more!) and we were happy to help both "get er done!" Both individuals involved are willing to give us a recommendation, so if you want to check us, out contact me and I will give you their contact information.

Hello World

2008-09-25T08:40:00.001-05:00

This is just a short post to introduce White Knight Commercial Funding to the world.

We are a small company located in North East Wisconsin, and pretty much intend to stay that way, growing instead by creating a network of partner brokers, lenders, investors, and businesses all centered on one thing: finding capital for businesses who can't get it from a bank.

We get inquiries daily; borrowers, brokers, and investors want to know how our deals work. it is my hope that by sharing actual loan scenarios and their resulting loan offerings that we can all learn what is possible, and what is par for the course, in the alternative financing world. We will disclose how we do things, what we charge, what investors charge. We will answer your questions to the best of our ability.

What we do is described in many ways. Some call it "hard money", we prefer "asset based lending", and it can take many forms. In many ways, it is not all that different from getting a loan from a bank. Investors expect to protect their investment by taking a lien on the collateral, they expect to be assured that you can pay them back, and they expect to make money.

One thing is for sure, this kind of financing has been around as long as businesses have, and as long as banks have been around, not financing them. It is experiencing a tremendous growth spurt right now, because, as we all know, banks right now, are in almost a complete paralysis. But businesses still need money, in many cases now more than ever, because the banks are not extending the working capital lines they used to. Even well established businesses are suffering from severe cash flow problems.

The numbers are staggering - In the last 90 days we have received over 250M in loan requests. We are certainly not anywhere near funding all the requests, but for a small, home based business in Wisconsin, it is an amazing thing to see unfold. There are good operators and bad operators out there. In our short lifespan we have already heard many horror stories about brokers who promise results, take retainers, and then never produce a loan. If you are a borrower, I will work on some tips on how to protect yourself, and I will share what I know in coming posts. Thank you for visiting.