Your outline and Checklist for a good hard money loan submission
Telling the “story” of Each Submission
Investors looking for funding or joint ventures should be able to tell a “story” or paint a picture of the entire deal if they wish to be taken seriously. This means the background of project, why it’s a good deal, why x amount is needed and how the project will succeed and exit the shorter term hard money loan. Each deal is evaluated on its own merit not an underwriting matrix and a decision to work with a borrower or JV partner is based on a small window of opportunity via the “elevator pitch”-executive summary.
Background and experience of the Borrower
One of the biggest challenges in the private lending business is extracting information from executive summaries and gathering information to present to our lending groups. Loan requests and business proposals should be prepared with the intent to answer all of the lender or investor’s questions. A lack of prepared financial information or a reluctance to give information about the borrower raises a doubts.
Your ES should be limited to two pages of text in a Word document or PDF. Use a file name that indicates the project name and the amount of the loan. For example, Texas Apartment Factory. Complete Hard copies should be sent later but are not helpful on the front end to move your project to the next stage, ie. (LOI,Term Sheet, Intent to fund…)
We have an outline to help write these if needed. Hard Money Quick Story-Submission:
Your loan request: (will include loan amount,terms and property)__
Tell the lender what you are after. If you want a loan, be specific. If you want an investor or joint venture, give the investor an idea of what this is going to cost him. Include exact details on the collateral being offered to secure the loan.The objective answers the first question for the lender. Give the loan amount, LTV, and terms you are asking for.
The lender wants to know how the loan will be secured and what his risk is. What is the property worth? You should always have at least a tax appraisal (value given by taxing authority) before asking for a loan. The type of property and class should be indicated. What are you paying for it? Do you have a purchase contract? Are there deadlines? Why are you buying this property? Lenders are specific about which cities they will invest in and need to evaluate the property based on current financials.
We use a standard Loan Applicaton for our Texas hard money and Texas Commercial Loans :
The Management (your Bio/Resume) :___
Many investment proposals indicate that the buyer will make improvements and change management to improve occupancy rates and cash flows. Indicate the experience of the management team, developer, or contractor and their track record. Indicate why you think you will manage the property better than the current owner. The lender may also ask for resumes.
The Market (do you have short Market study/comps and BPO-Brokers price opinion supporting your project)_____
Understanding economics in your location is necessary when determining the market demand and why the market is stable or improving. This information can be obtained by commercial real estate firms in the area. Secondary market research from a credible source goes a long way.
Multiple exit strategies are a good thing. Your plan should briefly describe what improvements are needed and their cost, how much money you expect to make and the timeframe. You should also indicate your contingency plan (have at least 3 altnernatives) if things go wrong and how to access the profits or future financing plans.
Be prepared to discuss your exit stategy. Will you :
Sell your project/property to payoff loan?
Refinance with bank or another hard money lender?
Bring in cash or “fresh” equity?
Have you discussed the assumability of your current loan (requested loan)?
Is JV or partnering with another or proposed lender possible?
These are the main exit strategies but there are more. Be prepared to discuss and have at least 3 alternatives ready.
Urban Coyote Funding
214 213 8967