It’s difficult to be an “old-time” banker. No interest in what it used to be like. In the those days we knew the customer personally. When we built this country, we sized up the heart, courage, and sense of the business (borrower) and made the decision. I won’t tell you it was all bucolic, or that all loans were paid promptly with a smile. That’s fantasy. The difference is we made a decision, and stood by it. As times pass, we are now have regulations which hamstring the lender. Not the world as I envisioned it. Formulation is now the key component, a virtual “assembly line” of investment offerings and programs… nearly all the same! Pound the square peg into the round hole, because ” that’s what every other lender does!” This creates a challenging field for both investor and the borrower. Borrowers who can’t get capital, investors who are hemmed into “cubby holes” of investment options, and trying to avoid the whims of stock and option trading, or poor results in the C.D. or bond market. Sitting glued to the financial channels to find out what catastrophe has turned the stock market on its ear. I believe investors would like the “rest of the story” straight up, not something sparse in the “spin doctored” preaching announcements of Wall Street Firms and vast conglomerated, global banks.
The “new idea”. By focusing on the Job Bill of 2012, 506 C provision, allows for public offering of private debt, in a Private Placement Memorandum. There are net worth requirements, but the exception is a game changer. Previously costly, or unavailable, a platform for interaction between investors and commercial borrowers is here. The S.E.C. does not comment on the offerings. However they are recorded and acknowledged to the public, in an “Edgar” filing. As well documentation to every state of issuance. All value must be compared thoroughly. Because it’s an infant program, lending itself to entrepreneurs, with ideas, but not investment quality loans, can create the possibility of abuse or loss. There can be tremendous expense is a start-up operations, colloquially considered “blue sky” investments. Characterized as a plan without assets or repayment. Included items can be previous expenses, points, prepaid interest, capitalized interest, commission fees to invest, coupled with “if” come or “will” come earning projections, with no immediate current cash flow. This all reduces your core capital investment, making it questionable.
The “better version of the “new idea”. With the exception and public advertising, using our bank and savings and loan experience, We have refined a platform publish the investment, originate private lending, with safeguards the investor and the borrower. We call this compatibility. A Synergy. The borrower needs capital, has an ongoing profitable business, the investor needs the interest return. The deal must work for both the investor and the commercial borrower, for it to be successful.
Expectations for the investor, should be an “open door” relationship with the origination/service provider, understand the business and the investment, what the capital was used for, risks and gain, and how they impact your investment. A virtual private banker if you will. No load, requiring ALL capital proceeds are funded directly into the debt value. There should be no upfront fees, no commissions, or anything that resembles them! These can be imaginative! Expect a report and monthly payment or balance statement. Require your originator/service provider to maintain personal supervision. Vigilant and ongoing underwriting throughout the term of investment. Third party verification. Require collateral, commercial real estate, is generally a component, and is a sound basis to create a collateral edge. Coupled with low loan to value, 50%-70% LTV, safety is secured with an asset which gains equity over time and cannot “walk off”. Crucial in this matrix is predictable cash flow. Determined at the outset, over a period of years. These investments are completely self-sufficient income wise. With caveats and prohibitions in place in loan covenants, including external debt authorization, bankruptcy remote entity, and estoppel agreement to preserve your equity value. Yield should range in the neighborhood of 1.5%-2.5% +, over the value of a C.D. over the same period of time. Finally, be sure you are on the same income line as all other parties. These investments are first lien holder positions. Over-seeding ordinary stockholders, preferred stockholders, bankruptcy court proceedings, judgements, and subordinated debt. Your originator/service provider gets paid as you do, with successful repayment of the debt. Your service provider, should be pro-active, constantly reviewing and refining practices and safeguards.