On Being "LinkedIn"

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

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

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

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

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

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...

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!