At Kingslin Capital, we have been structuring and funding deals, and working with banks and lenders, both commercial and private, since 2004. I want to take the time to share with you a simple, but classic example of a problem regarding deal structure, and how we solved it at Kingslin Capital.

Recently, a client came to us as referral from a local bank here in the Northwest. The bank could not do the deal for the client and suggested the client call us.

• The Situation:

Our client had purchased a retail property for their business with owner carried financing. Their note for approximately $650,000 had matured, and the client needed to refinance it.

• The Challenge:

After the client purchased the building, they obtained an SBA loan for 1.7 million. This allowed our client to remodel and improve the property.

The client talked to Bank A, who had ordered an appraisal that came in at $2 million dollars. When bank A looked at the title report, and saw the $650,000 loan and $1.7 million dollar second lien, they concluded it would take a gross loan amount of $2,350,000 to pay off both items. This was not including loan to closing cost. This was not something that was appeasing to the lender, who would only see it as a 118% LTV.

Our client talked to another bank with the same result. It was only after two failed attempts that our client came to us.

• Our Solution:

We needed to get all the facts and analyze the details to determine how it could be funded.

We decided the best deal structure would be to pay off the first only, and not try to refinance all the loans together, like the other lenders attempted. To do this, we had to track down the original SBA lender and negotiate with them on our client’s behalf. We requested that the original SBA lender subordinate to our new lender in the first position. After some negotiation the SBA lender agreed. The key to getting the SAB to agree: The package we provided them supporting our case for continued subordination.

After further negotiations, we gained the approval from the SBA lender to continue their subordinate role with a new first position lender.

After changing the deal structure, it was relatively easy to find a regular bank lender that would fund a new $650,000 loan, on a leased commercial building with an appraisal property value of $2 million resulting in a much more acceptable, 33% LTV.

Step 2: Identify the type of loan that is best for you

Step 3: Find the right lender for your deal

Finding the right lender for your loan is just as important as the loan itself. Here at Kingslin Capital, we see the most difficult to fund deals and more often than not, the borrower has taken their loan to the wrong lender. In both the conventional and the private lending sector, there is a high competition for the “cream of the crop” deals, but if there is any question about the loan, the borrower will have to keep looking and looking. Burning time and energy.

Many lenders are balancing their books as well as strategically carving out their own niche from the slim pickings of good loans today. Lenders want to lend, but on what and to who is the big puzzle. We find it is a full time job to keep up with the rapidly changing dynamics and communications with lenders in order to understand who is looking for what.

• The First Step:Thoroughly understand your own situation

This is where it pays to be prepared with good documentation and understanding your own situation. A good CPA can help you get a clear picture and is the best resource to generate this information. If you do not understand your own financials, then you are leaving it up to the lender to figure it out for you. This casts the first shadow of doubt. Lenders want to be helpful and approve your deal but really don’t want to waste time on deals that are questionable. It is best to have these documents ready and to understand them inside and out yourself, so you can explain the pros and cons as well as to shed light on the upside of your business and how the loan will be repaid.

*Lenders really want to lend, as long as they are confident they will be paid back.

Most lenders will ask for the following as a minimum:

1. Personal Financial Statements with Full Debt schedule and Balance Sheet
2. Last 3 yrs Tax Returns (both business and personal)
3. Year to Date Financial statements including the last 3 months operating statements showing all income and expenses
4. Last 3 months bank statements
5. Accounts Receivable Aging Report for businesses
6. Collateral valuation and Preliminary Title Report
7. Entity documentation (Articles of Incorporation and Opperating agreement)
8. Detailed list of Capital improvements for last 24 months
9. Rent Rolls and copies of Lease agreements

10. Recent Credit Report

————————————————————————————————

• The Second Step: A Good Deal Summary

The deal summary comes after thorough analysis of the above information. You must understand the pros and cons your own financial situation in order to present it. The deal summary is a brief outline of what you seek and what mitigates the risks for the lender. This should include:

1. Requested Loan amount
2. Purpose of the loan with detailed Use of Funds
3. Collateral information and Value/Business model and LTV
4. Method of repayment or exit strategy
5. Bio and Resume’ from each guarantor

Describe why you qualify for a loan and your detailed plan to repay it, on time.

————————————————————————————————

• The Third Step: Finding a Home for your Loan

Ask yourself:

• What type of loan are you looking for?

-SBA, Receivables, Expansion, Real Estate

• What are your Loan To Value (LTV) and Debt Coverage Ratio (DCR) parameters?
• How will you repay the loan?

Now you are ready to find the right lender!

Avoid: Too often a borrower will simply fill out an application with the person they are most familiar without asking a simple question: Are you currently lending on this type of loan?

I know this seems basic, and it really is, but time and time again this step is skipped and the borrower fills out an application. This can start a time-consuming process, and give an otherwise good deal a bad taste.

Remember: If the answer is no then ask whom they know who is active in that sector.

[Randen Traughber is the mind behind business development for Kingslin Capital. Randen’s extensive knowledge of the market place and his ability to stay on top of the changing times makes him an invaluable asset for Kingslin. Randen’s communication and problem solving skills allow him to create win-win scenarios and smooth transactions.]

• Commercial property loans
• Lines of Credit
• Receivables financing

We also have our own direct lending program. Sometimes when our clients can’t pay, we restructure or modify their debt.

We have negotiated over 219 deals in the last three years regarding debt restriction in support of our client’s goals, or with our own borrowers. Through this, we have learned what works and what doesn’t work for:

• Loan modifications extensions
• Debt restructuring
• Bank debt negotiations

Those who have witnessed the positive results we obtain for our clients ask:

What is our secret to negotiating with banks?

A strong game plan that insures the lender will get paid back!

Lenders are not mean or bad people, it is simple their job to make sure they will be repaid. If they don’t believe you can, they will have no choice but to aggressively solve that problem themselves. To avoid losing your collateral, or even possibly getting sued, follow these simple steps to compile a plan that will leave the bank or lenders confident in your loan.

KEY ELEMENTS:

• Have a creditable plan B and C: Sometimes even the best plans don’t work. By having a back up strategy, you are telling the lenders that you will be aggressive tot ake the necessary steps if your plan A falls short.
• Chart an aggressive course: You can’t walk on eggshells. You must take action and quickly make adjustments if things are not working.
• Use written timelines: These timelines should show what specific action will be taken. Who, what, where, why, when!
• Be realistic: Recently, a borrower put his property up for sale in hopes of selling it to pay off a matured note. He listed the property much higher then than actual value. This was based on a timeline of 12 months. What he should have done was list the property under market price at a 6 month timeline. It is important to also agree to reduce the price based on a a pre-planned schedule if no offers are received. Be prepared for the worst.
• Provide Relevant supporting data to make your case: Use property sales comps, provide company cash flow statements, show schedules of debt and real estate. Submit a personal financial statement and recent tax returns as well.
• Put everything in writing and sign it: This needs to be a real and well documented plan. Nothing says you are committed like your signature!
• Present your plan to the right person: Usually you need to be talking with someone representing the ledger that is high up in the organization. It should be the  decision maker, if possible. A lot of time can be wasted talking to he first rung not he ladder, so start at the top.

Kingslin Capital is here to assist you in any problems or situations you may run into when dealing with loan medications ad extensions, debt restructuring, and bank debt negotiations. Contact Randen Traughber today at 541-350-444

Author: Todd Bouchard is the CEO of Kingslin Capital, a private money lender and commercial loan broker. Kingslin Capital provides all types of commercial financing, such as commercial property purchase refi as well as lines of credit, business expansions and receivables financing. Visit us at www.kingslincapital.com

Since 2004, we have specialized in solving problems related to the finance of commercial properties and business financing such as lines of credit and receivables financing. We see the tough deals referred to us by bankers, accountants or attorneys, who have a client who needs help. Over the years, we have seen hundreds of loan submissions and talked to hundreds of bankers who have turned clients down.

Here are four road blocks to avoid.

Wrong Lender
The borrower took an acceptable deal to the wrong lenders, who, under today’s tight market conditions, cannot fund a particular deal. We are seeing this more often recently, as each lender has its own constraints. It used to be that if a deal worked for one, it would work for most. Times have changed, and they continue changing. Some banks are under FDIC pressure and have stopped lending on certain types of businesses, collateral, or geographical areas.
The banks don’t want to say no, or maybe they are not lending at the time, but in some cases the loan officers are not sure of all of the internal decisions being made on the bigger picture. Their only option after time passes is to simply turn the loan down (often with little to no feedback or options). The borrower then usually seeks somewhere else to go through the process again, often burning more valuable time and energy.
The key is to work with a professional who is keenly attuned to the right lenders for your deal. At Kingslin, we put a lot of energy into understanding this information so you don’t have to.

Wrong Presentation
Presenting a loan in a manner that does not fit with a particular lender can be equally crippling to a project. Borrowers often ask for something that can’t be done, even if it is the right project for the right lender. Asking for amounts, terms, or structures that puts them outside of the banks lending guidelines also will result in a “no”. Borrowers often do not have all of the information assembled in a concise, understandable format, and often expect the lender to do it or to “just get it”. This takes a lot of patience and time and most lenders don’t have a lot of time either.
Once the bank says no, it is hard to get them to start saying yes. Banks respond to what you are asking for. They don’t usually come back to you and say, “well we would do the deal if . . . (fill in the solution).” Banks just say no, or if they are helpful, they will direct you to a good problem solver who is experienced in navigating the process. The right problem solver can help assemble the necessary information. They will know the loan criteria for the target lender and present it in the right format.

Not Prepared
Almost everyday we get loan submissions where borrowers have ill prepared or sometimes no financials at all. Be aware that the bar has been raised! People tell me they didn’t used to have to provide this information. Well that is one of the reasons we had a meltdown in our national economy. All lenders today, including private lenders, will ask for the following at a minimum; Complete Personal Financial Statements, Cash Flow Statements, Balance Sheet, and Schedules of debt.

A good loan broker or CPA can help you get this in order. I can’ t tell you how many times a borrower has come into my office dejected because they were turned down. Once we went through discovery we knew we could help them getting the professional documentation in place so their loan could be funded.

Not a Deal
Hey, the bad news is some deals don’t work. The banks are more conservative in loan to values for all types of collateral. The appraisals are tighter and more conservative. Borrowers need to come in with cash. A big hurdle for buyers (and some refi’s) is the fact that to most lenders, the purchase price is the value. Even if it is acquired through what you may consider a “discount”, that is now considered to be “market value” in many cases. Sometimes this can be overcome with an equity investor or by adding another guarantor. Again, a good broker or private lender may be able to help with equity or finding a stronger partner.

Until next time.

Todd Bouchard is the CEO of Kingslin Capital, a private money lender and commercial loan broker Kingslin Capital has been funding loans through out the Pacific Northwest since 2004. Kingslin Capital provides all types of commercial financing, such as commercial property purchase refi as well as lines of credit, business expansion and receivables financing. Visit us at wwww.kingslincapital.com

]]> http://kingslincapital.com/blog/feed/ 0