All Forum Posts by: Christopher Perez

Preparing Loan Requests That Get Funded 

Lenders are driven by many factors; one of them is self-preservation. Simply put, no lender wants to make a deal that goes “upside down” Therefore, a would-be borrower, wants to increase the comfort of the lender by providing evidence that the business will repay the loan. This job starts with the preparation of the loan request. Here are the elements of a winning one:

A) It’s All About the Numbers: Financial statements are the backbone of your loan proposal. Obviously, you need an income statement, balance sheet, and a cash flow statement. Most small businesses don’t have audited statements, but nonetheless should present statements that are compiled and perhaps reviewed by a certified public accountant.

A “review” is a technical term in the context of accounting. It’s not a full audit, but it goes beyond a mere compilation which, in the final analysis, represents your financial statements on your accountant’s letterhead. A review, sometimes called an analytical review, includes testing of certain components of the presentation, but there is no assurance about the truthfulness of the financial statements.

You should avoid presenting internally-generated financial statements at all costs, because they often raise more questions then they answer. However, you can and should present a number of internally-generated items including: a schedule of all collateral, an aging of accounts receivable, a description of all real estate (including photos), financial projections, personal and corporate tax returns for the past two years, and a schedule of inventory, if applicable.

The development of financial projections is an art unto itself that goes well beyond the scope of this article. However, it’s fair to state that your financial projections are the linchpin of the proposal. After all, the loan request is being evaluated on whether or not the projections materialize and generate the kind of cash flow that will pay-off the loan. True, the collateral for real estate loans (i.e., the property itself) is vital since, in the lender’s eyes, it is the source of repayment if the cash flow should dry-up. But few lenders want to make a loan just because there’s adequate collateral. Lenders don’t want to own property; they want to make money from the interest charged on each loan.

Although five-year projections are standard, it is the first three years that really matter. And of these, the first year should be presented monthly. Subsequent years can be presented quarterly if visibility becomes difficult after a certain point in time.

A loan request also includes qualitative information about the company, its management, and the industry. This subjective, qualitative look, particularly important for newer companies without a lengthy track record, should consist of the following elements: company description, key personnel, industry analysis, marketing operations and a description of the use of proceeds.

B) Putting It All Together: Below is a sample table of contents from a loan proposal prepared for a restaurant company interested in obtaining funds for property acquisition and refinancing. Note section “A” below, simply titled, “Loan Request.” Keep in mind that the components of a loan proposal should be geared toward a specific loan. Therefore, the Loan Request spells out the kind of loan you want, the amount, and a one to two sentence description of why you want it. Don’t give this section short shrift just because it’s little. If the lender can’t get past the first page, your loan request won’t go much further either.

Table of Contents

A. Loan request

B. An Overview of the Restaurant Business in the Tri-County Area

C. Company Profile

D. Management Profiles (including biographies)

E. Marketing Operations

F. Use of Loan Proceeds

1. Acquisition

a) Agreement of sale

b) Pro-forma Operating Statement

c) Appraisal letter (for real estate)

d) Photos (of real estate, property, etc.)

G. Refinancing of existing property

1. Statement of Operations

2. Pro-forma Operating Statement

3. Introductory brochure (marketing piece for property)

4. List of improvements

5. List of inventory

H. Compiled, Reviewed, or Audited Financial Statements for each of the borrowers, prepared by (name of accounting firm)

I. Financial forecasts

J. Tax returns for principals

C) Selling the Deal: Now here’s the shocking truth: no one has ever landed a loan with a great loan proposal alone. The documentation is simply a blueprint. To win-over the lender, one must present and sell the deal. This should come as no surprise. Remember that the basis of all loan underwriting are the THREE C’s: Cash flow, Collateral and Character. Character, at the most fundamental level, speaks to repayment. Specifically, has this person historically paid their debts? But at another level, character speaks to the confidence the borrower inspires in the lender. As you make your request for a loan, the lender thinks, “Can this person pull it off? Can she get the loan, put it to work, and generate the kind of cash flow her forecasts suggest?” If the response is something like, “They can’t even sell me on this deal,” it dramatically undermines the loan request.

Accordingly, you should prepare and rehearse a presentation that walks the lender through your loan proposal. A good lender will readily embrace the opportunity to hear your pitch. And even if a lender tells you it’s not necessary, you should press the case and suggest that you feel it is important that he or she see the presentation. Even if you never get the chance to present the proposal, you haven’t wasted any time preparing a formal presentation; the act of doing this will prepare you for answering the many questions you will face during the loan approval process.

Here are some important points to keep in mind regarding your pitch:

1. Your presentation should be no longer than 20 minutes. This means that you should spend no more than two to three minutes on each section outlined above.

2. Some common errors that borrowers make are: droning-on about technology, assuming a higher level of knowledge on the part of the lender about your industry, and being overly optimistic with respect to the future sales and earnings of the company.

3. Some sort of visual support is helpful, but again, a common error is packing the slides or handouts with too much information. You want to create billboards, not manuscripts. There will be plenty of time later for the excruciating details.

As you draw-up your loan proposal, remember that lenders have many loan requests from which to choose, and some will be obviously stronger than others. But it's not their job to make the case for approving your loan; it’s yours.

D) The Problem with SBA Loans: There’s no doubt about it: the Small Business Administration (SBA) has assisted millions of small businesses since its launch in 1953. In the last decade alone, the SBA has helped more than 435,000 businesses with nearly $95 billion in financing.

But the truth is that the SBA is not for every small business owner. In several instances, the time and energy spent pursuing government programs can be more productively spent in the private sector where business moves faster with fewer encumbrances.

Though this latter point seems to be a knock against the SBA, it’s not meant to be. In fact, the slower speed and higher degree of difficulty associated with obtaining SBA financing is due to the significant and unique hurdles the agency faces in conducting its business.

Specifically, with taxpayer funds at risk, federal regulators must take every possible precaution to protect them. In addition, they must take all possible steps to ensure universal access to the loans. Imagine the protest if SBA-sponsored financing was channeled to one specific industry and experienced substantial losses. These two constraints, combined with common misperceptions of the agency held by borrowers and entrepreneurs, often conspire to make SBA financing very challenging for even the most savvy business borrower.

Contrary to popular belief, the Small Business Administration is not a direct lender and does not lend money. The SBA’s cornerstone financing program, the so-called “7(a)” program, provides a guarantee to banks that make loans to small businesses on a portion of the principal. If the borrower defaults, the government will repay the bank. This guarantee, or protection of principal, motivates lending that might not otherwise occur. As a result, the SBA funnels much-needed debt capital to small businesses that otherwise might not be able to borrow money.

While the economics of this arrangement make sense, they result in a two-tiered application process. The first application is made to the lending institution, typically a bank (though not always). Another application is made to the Small Business Administration for the guarantee. Of course, a two-tiered application process naturally results in a two-tiered approval process. While both parties work hard to respond fast, the reality is that two approvals often take longer than one. For businesses with fleeting opportunities, there can be a real cost associated with any delay.

In addition to potential delays with the approval process, the disbursement processes associated with SBA-guaranteed loans can result in further delays and additional documentation. Specifically, in most instances the agency requires lenders to make loan proceed checks co-payable to the borrower and the borrower’s payees. While this represents prudent processing on the part of the SBA, for borrowers trying to fund a project where costs may be constantly changing, specifying costs at a particular moment in time can become a complex and time consuming challenge.

Next, there is a common misconception that the SBA will finance projects or businesses that are very risky and considered not fundable by traditional lenders because the government can afford to lose money. While the concept of entitlements has significant currency inside of the federal government at large, it has almost none inside of the Small Business Administration.

Because of the public policy constraints faced by the SBA, the underwriting standards look very much like those of a conventional lender. First, SBA lenders, and by extension, the SBA itself, are not collateral lenders, but cash flow lenders. Repayment from the cash flow of the business is a primary consideration in the SBA loan decision process. Like any other lender, if cash flow dries up, the SBA is looking for appropriate collateral behind the loan. Though the agency can often work with situations where collateral might be thin, SBA loans require a guarantee from all principals with a stake of more than 20% in the business enterprise. In addition, this guarantee carries a lien on the borrower’s property. Translation: If you default and the SBA pays the guaranteed portion of your loan principal, the agency can go after your personal property and assets to make it whole again.

The fact is that the SBA is not in business to assume a great deal of risk. In truth it can’t, because the agency wasn’t built that way. It is for this reason that the Small Business Administration has often turned-down guarantees on loans that lenders have approved.

Finally, SBA-guaranteed loans are not cheap. While the federal government subsidizes a wide range of activities and constituencies, small businesses are not one of them. The Small Business Administration charges its lenders a guarantee fee, which the lenders can, and often do, pass onto the borrowers. For loans of more than $150,000, up to and including $700,000, a 2.5% guaranty is charged. For loans greater than $700,000, the guaranty is 3.5 percent. For loans greater than $1,000,000, there is an additional upfront guarantee fee equal to 0.25% of the amount by which the guaranteed portion of the loan exceeds $1,000,000. In addition, if a commercial loan in a combination financing has a senior credit position to the 7(a) loan, a one-time fee equal to 0.7% of the amount of the commercial loan is charged to the borrower.

In addition to guaranty and servicing fees, the Small Business Administration charges a so-called “subsidy recoupment fee” for prepayments of more than 25% during the first three years of loans with 15-year maturities or more. These “subsidy recoupment fees” range from 5% of the prepayment and fall to 1% over time. These fees, in addition to an annual servicing fee of 36 basis points, can have a material impact on a borrower’s effective interest rate on the loan, and in some instances, the company’s overall cost of capital.

It is important to point-out that none of the requirements or underwriting standards established by the Small Business Administration are unreasonable. They are established to protect taxpayer dollars: a must. However, they should very reasonably cause borrowers with fundable deals to carefully consider their sources. While the SBA may offer an alternative, lenders that do not offer SBA- guaranteed loans are unencumbered by the constraints of a federal agency. As a result, they may be better positioned and more nimble in servicing your unique borrowing needs

Instead of earning potential on 1 out of 20 deal, what about adding finance and earning on 20 out of 20?  Make sense? 

Marketing Ideas/Sources for Commercial Mortgages

 Pure networking is the absolute best method of marketing these commercial mortgages. Everything you do in your daily activity can be a vehicle to marketing this service. Talk to every person with whom you come in contact during your daily activities and go through the details needed for the Executive Summary. Group meetings are pure gold from MeetUp.com to investors. You literally can grab 10-20 deals at one meeting and become the go to source for lending.  Bank turndowns are ideal, but one must be careful when cultivating this market. Do not approach the bank itself (unless it’s your uncle who owns the bank), but approach the individual loan officers you know who are in contact with the customers. Give them your card and have them refer the customer to you. You can help banks retain deposit accounts for those customers who don’t qualify for their programs.  Think of the other types of small business activities that are somewhat aligned with the types of customers you are seeking, and develop a cross-sell marketing alliance with them. (i.e., call on alarm system companies and people who sell life insurance to small businesses; call when you see a sign tacked up on a telephone pole offering health insurance to individuals or small business owners…all of these people traffic with our customer types).  Check public records to find balloon notes filed at your local courthouse.  Check public records to find private mortgages (person to person) filed at your local courthouse.  UCC filings on equipment (Dunn and Bradstreet may be able to supply lists).  Research classified ads for commercial properties and contact the seller or realtor.  Network with CPAs, attorneys, and financial planners.  Join your local Chamber of Commerce for lists of businesses in the community.  Listen for radio ads directed at self-employed business owners and network with those companies who place the ads.  Research tax sales on commercial properties.  Contact leasing agents specializing in commercial properties.  Being an IAP comes with commercial leads but always look for other sources as well.

 Realtors are always looking for lenders who handle commercial mortgages.  Social media, Facebook, Linkedin, Twitter, Craigslist, etc.

Tips for calling on realtors: Call a local realtor and ask if they represent or list commercial properties for sale. If they say yes, you introduce yourself as a new commercial lender (Most know the term Account Executive) for the area: Tell them you would like to send them some information, and then send a letter. The letter and brochure should include the types of loans you can offer. At the end of the call, make sure to ask if they are currently working on any deals that may have a financing need!

Tips for calling on business owners: for the local business owner you drop off a flyer or card and let them know if they need financing, a business loan, refinance, or want to buy or sell a property to have them give you call. You are a lender. You have the money! Once you get the lead, fill out the Executive Summary and we can find out which programs will work best for them. We will be able to quickly determine what further documents are needed and get that loan closed.

Real Examples of why you need a full service brokerage:

 Borrower running out of time on purchase and sales agreement about to lose deposit. The brokerage provides a creative solution by calling the seller for an extension on the buyer behalf.  Bank selling a property and didn’t disclose a sink hole. Brokerage coordinated with title and determined risk too big. Helped borrower find more suitable investment and closed new loan.  Wind insurance after hurricane. Brokerage coordinated new policy options as first quotes made the loan nonviable to new debt service ratio.  Law suit mid transaction. Brokerage coordinated every aspect from attorneys to buyer and seller, to realtor, to owning bank to a successful close.  Existing lender can no longer do loan mid transaction through no fault of borrower. Buyer will lose deposit earnest money. Brokerage issues pre-approval same day with new lender allowing borrower to get an extension to close.  Borrower starts construction prior owning property. Brokerage coordinates all documents and packages loan properly where it “makes sense” for the lender to close.  Borrower takes out loans mid transaction lowering fico scores before new close. Brokerages issues new offer and still closes before deadline.  IRS issue. Brokerage coordinates with the IRS agent to get the payoff request needed to close loan.  The title company chosen by borrower won’t clear title. Brokerage brings in new title company to get clearances to close loan

February 15, 2018 “Just wanted to send a special THANKS to everyone who worked so hard to get this done. I know this was not easy, the email back and forth was very interesting but a true demonstration of how passionate everyone is about what they do. Most importantly you all stuck with it and saw it through to the end. Thanks again, you are a great addition to my investing team could not have gotten this one done without your commitment to the process. So for that THANK YOU! For a job well done. ” Leaveil S, CEO & Managing Member, Texas

February 12, 2018 “Throughout my financing experience, I’ve yet to find somebody as helpful and knowledgeable as Megan. Her hard work and diligence was unparalleled. I received personal attention throughout the process - even on a smaller deal. Megan has my financing needs going forward” - Moussa, Managing Member of MD Investments Moussa- New York

January 25th 2018 Absolutely perfect! Thank you for making this so easy and you saved me 4 points over the last lender who dropped the ball on the same day as closing was supposed to take place. The right offer and straight into the closing department within an hour. $25,000 less in fees! Wow!” Eugene F, Washington

Jan 2018 “You saved my 20 year business and property when every other lender turn their back on me in my time of need. Not only will I use you again and refer all of my friends and colleagues, you have a friend for life! Thank you!” Eric M, New Jersey

I have been an outside consultant working with 11 Cap since 2016. In 2017 I have directly been involved in 48 CRE loan closes with them. Top drawer and the best in the business.

I have been an outside consultant working with 11 Cap since 2016. In 2017 I have directly been involved in 48 CRE loan closes with them. Top drawer and the best in the business.

And for anyone willing to work hard in the CRE loan business here are some Marketing Ideas/Sources for Commercial Mortgages

• Pure networking is the absolute best method of marketing these commercial mortgages. Everything you do in your daily activity can be a vehicle to marketing this service. Talk to every person with whom you come in contact during your daily activities and go through the details needed for the Executive Summary. Group meetings are pure gold from MeetUp.com to investors. You literally can grab 10-20 deals at one meeting and become the go to source for lending.
• Bank turndowns are ideal, but one must be careful when cultivating this market. Do not approach the bank itself (unless it’s your uncle who owns the bank), but approach the individual loan officers you know who are in contact with the customers. Give them your card and have them refer the customer to you. You can help banks retain deposit accounts for those customers who don’t qualify for their programs.
• Think of the other types of small business activities that are somewhat aligned with the types of customers you are seeking, and develop a cross-sell marketing alliance with them. (i.e., call on alarm system companies and people who sell life insurance to small businesses; call when you see a sign tacked up on a telephone pole offering health insurance to individuals or small business owners…all of these people traffic with our customer types).
• Check public records to find balloon notes filed at your local courthouse.
• Check public records to find private mortgages (person to person) filed at your local courthouse.
• UCC filings on equipment (Dunn and Bradstreet may be able to supply lists).
• Research classified ads for commercial properties and contact the seller or realtor.
• Network with CPAs, attorneys, and financial planners.
• Join your local Chamber of Commerce for lists of businesses in the community.
• Listen for radio ads directed at self-employed business owners and network with those companies who place the ads.
• Research tax sales on commercial properties.
• Contact leasing agents specializing in commercial properties.
• Being an IAP comes with commercial leads but always look for other sources as well.
• Realtors are always looking for lenders who handle commercial mortgages.
• Social media, Facebook, Linkedin, Twitter, Craigslist, etc.

Tips for calling on realtors: Call a local realtor and ask if they represent or list commercial properties for sale. If they say yes, you introduce yourself as a new commercial lender (Most know the term Account Executive) for the area: Tell them you would like to send them some information, and then send a letter. The letter and brochure should include the types of loans you can offer. At the end of the call, make sure to ask if they are currently working on any deals that may have a financing need!

Tips for calling on business owners: for the local business owner you drop off a flyer or card and let them know if they need financing, a business loan, refinance, or want to buy or sell a property to have them give you call. You are the lenders voice. You have the money! 

Sherry.  You failed plain and simple.  Its a shame now this is your voice.  Sad.  In the meantime the company in 3 days into 2018 has paid out commissions of over $20,000 to 5 of our reps.  Sure your mad and you couldn't do it.  I get it and for every one that fails we will create two that succeed and change their lives.  So keep yelling from the bell tower "I couldn't succeed" and we will keep posting those that do everyday.  Happy New Year! 

What are borrowers Saying?

Jan 2018 “You saved my 20 year business and property when every other lender turn their back on me in my time of need. Not only will I use you again and refer all of my friends and colleagues, you have a friend for life! Thank you!” Eric M, New Jersey

December 22nd 2017 “I had a wonderful experience with 11 Capital Finance and with Megan in particular. She made the process as easy as possible, and without her, the process would have taken a lot longer. Great customer service, and a positive experience, I would happily use them again in the future and of course recommend them to my network." - Josh S from Hawaii

December 22, 2017 “Eric L is an excellent loan officer. For the last three weeks I have made numerous calls across the Country trying to find my client a loan. Eric took time with me last Saturday morning. Eric without a doubt is the most knowable loan officer I have communicated with. His personality makes working with him very easy.” Jim O

“My husband and I are house redevelopment professionals. We have worked with many, brokers, private and hard money lenders over the past few years. We just closed a deal with Megan at 11 capital and it was the smoothest deal we have ever done! Megan and her team were professional and on top of things the entire way, having everything in place way before our closing, so there was no last minute craziness! 11 Capital has many different types of loans to choose from and they provide several different options from different lenders for each potential loan. As long as 11 Capital continues to finance us, we will continue to be loyal borrowers.” Cheryl L, Florida July 2017

“I am so very impressed with your company, visionary approach to financing and success stories. I feel most honored to even be considered at such an early stage. I truly mean this from the bottom of my heart. You are and should be very proud of these wonderful pioneering accomplishments. Your team have blazed new trails for success in the financial world.” Dr. Joel R, New York

“Y'know, I was told, "Megan gets her deals closed!" I appreciate that this was not an easy one, but you made it happen. Thanks again!” George M, Georgia

“You are at the top of my list for financing! You know your job, and do it extremely well.” David H, Texas

What are the IAP saying?

January 4th 2018 What a year it has been with 11 Capital Finance! Funny how time flies when you are having fun! As a full-time Accountant, my mind-set is always focused on dollars and cents. Learning this business of Commercial Lending has been an educational and exhilarating experience!! The Management Team here has given each one of us a platform in which everyone can succeed. The formula here is simple: Follow the system! Follow Up with clients! Succeed! I'm happy to say that year one was a year of planting seeds, and leaping over frogs (deals gone bad). This year I am already reaping the fruits of my labors. After trying and failing at sooooo many things, I look forward to growing with this company. 11 Capital Finance is THE REAL DEAL!! T.J. R Michigan (Accountant)

December 29, 2017 "In the time I have spent working with 11 Capital Finance I have witnessed a company that is made up of generous and dedicated individuals who relentlessly pursue excellence and creative problem solving. I have been welcomed into the fold, provided with expert guidance, and continually recognized for my efforts. I am grateful that I found a place to dedicate my talents and energy where I can create my own future and be rewarded for my hard work and dedication. I look forward to continuing to contribute to that growth, both for myself and the company. I see very big things on the horizon and I can't wait to meet the challenges and opportunities head on." Ryan O, Iowa

December 25th, 2017 "I started working for 11 Capital with no background in Commercial Real Estate, Finance, or even Business. I started in the program simply because I had heavy interest in real estate investing myself, with high hopes, and a blank slate seeing what potential there was through through the success of others. So to that, I had to work with what I had - mornings before work, on breaks and lunch from my W2, and making calls from my other part time job driving a 16-wheeler, all while working to originate leads wherever I could. I didn't close loans in the first couple weeks, or even the first couple months. But I followed the systems and the leverage that they offer and have in place for their IAPs to succeed, and in 12 months have since closed 6 deals with the company, now making 50% commissions and with access to enterprise level relationships where there's potential to make hundreds of thousands, and possibly even 7-figures on a single deal... Where else in the U.S., or in the world, can a guy with no background, or prior education have this kind of opportunity after just 12 months. All I did was put the time in - no other way around it. Even better than the above, and the reason I plan on sticking with this company, is because they have not only provided an incredible support system and incredibly encouraging atmosphere, but they continue to launch the ultimate in leverage tools that will ultimate allow me to make money in my sleep, and allow me to stop working 70 hr weeks, so that some day, sooner than later, I can quit the grind. I worked my morning breaks, my lunches, my nights, weekends, and time behind the wheel so that eventually I don't have to. The company is emerging into more than I ever expected when I signed on, and the fluidity, and "open forum" feel of the company makes it a place I look forward to growing with, and being a part of. As someone once told me, "This train is moving full speed ahead - get on it, or be behind it." - I plan to be on board." Marty J, Mid America IAP All Star (Truck Driver)

December 24th, 2017 “I am grateful to be a (small) part of what you are building at 11Capital Finance, and appreciate the professionalism and energy you bring to this team. And so appreciate that same professionalism & energy in other team members, such as Trena and Ryan. Thank you for all that you do.” Brian W. JD. (Attorney)

“Things are happening so fast for me I cannot believe it. If I can do this and I work 3 part time jobs anyone else can do this. I am not special or gifted. I just saw an opportunity searching online, saw an ad and went for it. I researched the company and I did my due diligence. They are giving the formula. Follow it if you are serious about making this happen for you and your families. You will not be sorry you did.” Victoria K, North Carolina

“I am just completing week 6 course. The programs are amazing. This will be my last home for professional money services. It's is really refreshing to deal with a company so professional. The calls are great and each time I hear one my confidence grows. I have been looking for over 10 years to find such an opportunity and I know I have finally landed at the right place.” John C, Pennsylvania

“Not trying to butter up on you or anything like that.... but that was an amazing conference call! I know there is still a lot of work ahead of us but I felt good after the call. I can also sense that a lot of the stress weighing in on the good borrower had been unloaded. Am very glad I was part of that conversation. Thanks again for everything!” Roberto G, Texas (Realtor)

“The educational program is unparalleled. I joined the team with NO industry experience and quickly gained the knowledge that I needed to be both comfortable in the role and successful. The coursework is well laid out and full of impactful information for anyone from industry experts to the inexperienced. Many courses have access to industry experts or direct lenders that walk through their programs and can answer any questions. Also, having access to the courses live and recorded is a huge asset; I often found myself revisiting the recorded courses to gain a greater understand.” TJ H, Florida