The “No Risk” Deal.

    I try to be open minded when evaluating proposals but there are some hot buttons which will move a proposal toward rejection quickly.  I have covered several of these topics in previous blogs.  A potential borrower should not give a potential lender silly reasons to reject their proposals.

     I hate when potential borrowers present their deal as “no risk”.  If this deal were truly “no risk” there would be a line of people begging to participate.  Why are you talking to me?  Every loan has risk.  I am giving you my funds and first have to trust that you will use them for the purpose that I intended.  Then I have to trust that you can execute your plan successfully.  Finally, I have to trust that if you cannot execute your plan on schedule that you will stay with the deal, potentially absorbing a loss yourself, instead of walking away and leaving me with the problem.  You might make me fight you in court for the privilege of cleaning up your mess.

     Some of the borrowers who present proposals to me prefer to hold their projects in LLCs.  I understand this and have done many deals where the securing property was held in an LLC but can we be real for a minute?  You set up the LLC to protect yourself not to protect me.  If there is no risk why are you doing it in an LLC?  Yeah, I thought so.

     Here is a small list of things that could go wrong:  Physical damage (fire, flood, high wind, theft, vandalism);  Economic factors (interest rates rise, lending requirements tighten, housing market slows, recession, depression, monetary collapse);  Health issues (illness affects you or your family, injury leaves you unable to work, death).  Here’s one you might not have thought of: someone sues you for real or imagined harm you have caused them and names me in the lawsuit just because I am connected to the deal.  Think that is far-fetched?  So did I but not anymore.  It can happen.  Can you figure out how I know?

     There are no “no risk” deals.

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