Posted by Eric C on July 09, 2001 at 01:10:16:
Hi Michel -
Most (if not all) lenders will tell you they are “conservative” when they really mean is “I don’t know you” and “I don’t understand your request”.
Ed and Terry have a great course on lenders. It the best course for a beginner on the market today. Sign up. Learn to deal with banks and bankers. It’s not that hard. Honest.
Remember what the banker needs from you:
- How much money do you need?
- When do you need it?
- What are you going to use it for?
- How will you repay the loan?
- If all else fails, and you are unable to complete the project, how does the bank still protect itself, it’s capital, and it’s profit? (also known as Plan B)
You need to write all this up and package it well. Neatness counts!
Make sections describing as much of the property as possible. The proposed repairs,etc.
But the very first section should be an informal letter from you to your banker outlining the answers to those 5 questions I asked earlier. It needs to be concise and to the point. Don’t make him (her) search for relevant details about your deal.
Point 5 is probably the most important. And the one that most people ignore. It’s where you are making clear to the bank that they CANNOT lose money on your deal. No matter what happens.
And there are a lot of ways to give them that assurance. You can offer compensating balances, additional collateral, or my favorite – buy-out agreements.
I often have a local group (or investor) who is well known to the bank (if I am not) write up a simple buy-out agreement that states that they would be happy to purchase my interest in the project at any time within the next year (or whatever term you are seeking) on thirty days notice. Pension plans are good for this.
Sometimes, I pay for this (a point), but most often I don’t. (they are compensated through other means).
I can’t say whether this type of arrangement would work for you, but it has certainly worked for me in the past and continues to do so (and just up the road from you!).
Whether or not you are successful in securing financing for this deal, you should plan to spend some time getting to know about banks and banking.
Deals come and go but the knowledge gained is yours forever.
Try calculating the yield on that.