Mco Financing
Consulting
Helping
You Make More Money!
Fees and Financing Tips
To arrange financing -
Our financing fee is "success based".
You have to accept the terms and conditions of the financing we arrange
for you before we are entitled to any fees. Our fee is then paid to us by the
lender or you when the funds are dispersed. It is an additional cost of
the financing that you will pay.
Financing fees - "points" - can range from
an extreme low of .5% (honestly quite rare) to an extreme high of 15%. We find
that 4.0% is the lowest most applicants should hope for and that 5.4% is
becoming more of a national norm because of the increased complexities involved
in meeting various lender requirements. Incidentally, the points just mentioned
are "total" points that include those charged by other brokers and
referral sources if any are involved. Points that may be charged by the funding
source are additional costs to the borrower. Of course, as a rule the larger
the financing, the smaller the fee so for deals over $50 million a total fee of
2.5-3% is usually normal.
Often, however, there is a small application and
processing fee for certain co-brokers and/or lending sources. A refundable (at
closing) $500 fee is not atypical, but neither is a large five-figure one on
larger deals, but whenever possible, we do not take our clients to those
places. Instead we can almost always work with sources and colleagues who do
NOT charge upfront fees unless it is for a specific service.
For projects above $50 million, we can arrange 100%
financing for a 30-year term at LIBOR +2. There can be a grace period of up
to ten years. The source requires collateral equal to 10% of the loan amount
and it must be in cash or a cash equivalent. Real Estate is not accepted as
collateral. This source has no upfront fees of any kind and even their due
diligence costs can be paid for out of the proceeds. They obviously are looking
for substantial clients and deals, but they are real.
Another program that is in the WAY COOL category
(for deals from $10 million on up), requires the establishment of an escrow
account of $1.5% of the requested amount if under $25 million; 0.5% if the
requested amount is above $25 million.
It is the only 100% LTV
program we can find that does not place any mortgage or lien on property, yet
does finance 100% of a project or deal. It charges simple interest only
for the life of the 10-year loan and has a balloon kicker at the end of the
term. (In some instances the loan can be extended.) This is pretty difficult to
qualify for, but under the right circumstances it can be pretty attractive.
James Cameron reportedly used it to finish Titanic.
Another way to do 100% financing is through a debt-equity
investor, although they typically prefer the applicant HAVE AT LEAST 6%. Here,
the deal is structured as a short-term, interest-only financing with an
expectation that the lender will be taken out at the end of two or three years.
These lenders look for a blended annual rate of return of 25-28%, but are often
an extremely efficient way to get a deal done when the applicant just doesn’t
have a lot of upfront cash. In November 2002, we received a debt-equity
proposal from a funding source that did provide 100% financing and a separate
debt-equity proposal from a funding source that provided 100% of the equity
needs for a borrower.
Another avenue is a Reg D offering. We charge a $7,200
consulting fee plus direct expenses to meet with our client, develop the issue,
coordinate and register it with States where required, and then introduce it to
5400 private qualified investors group and a network of broker/dealers.
After the issue is sold, there is a success fee,
called a finder’s fee in a Reg D offering. The finder’s fee and broker’s fees
are on top of the money clients net from the sale of the shares (or debt
notes). Please ask for a summary of Reg D if you are interested.
For a development project we can almost always get
70% of an MAI Appraised “completed value”. Again, almost always, that amount
should cover all of a project’s development costs.
In any event, we regard helping you navigate through
up-front "cost" requests as part of our service and responsibility to
you and will always offer our best effort, judgment and advice to protect you!
For consulting -
Obtaining financing for a qualified applicant is
contingent on a properly packaged application presentation, especially the
executive summary that we prepare for you from your materials. That means it meets
the lenders expectation. At least 95% of a successful funding effort is due
to that fact...the package met the lender's expectation!
If what you send to us doesn't, we can either work
with you to bring it up to that expectation, do it for you or pass on the
opportunity to help you. We can not send a package that will not interest the
lender, and might even alienate them for our future dealings. Sorry, but that's
just the way it is.
For free, we will
send you a checklist of what needs to be in your business plan, and again, for
no charge, we will be happy to answer a few questions. We only ask that you
sign our Confidentiality/Non-Circumvention and Fee Agreements prior to our
helping.
Sometimes that assistance is enough, but most of the
time it is more expedient to simply let us work with you to re-write your plan.
That re-write help is performed for a fixed fee of
$9,000 plus direct expenses. The engagement, and therefore its expenses, almost
always includes visiting with you in person – a cost paid by the client.
If a business plan needs to be developed or
extensively recast, a fixed fee of $18,000, plus direct expenses will get it
done if the financing being sought is relatively small. If the funding request
is $5 million or more, the rules change and the work is much more complex. Our
fixed fee to develop or completely re-write a business plan of that magnitude
is $27,000, plus direct expenses.
Those three fixed-cost services assure you of having
a properly
packaged and submitted loan/funding request. As well, they represent a
significant savings to you because we don't have to monitor our hours and know
when we start what the end product will be
Perhaps the most important service we can provide
you, though, is a feasibility study. Without an objective evaluation of
the business or project, the factors impacting on its success and verification
of revenue projections, most business plans and funding requests are simply
going to fail. Funding sources and/or investors need outside evaluation to help
them understand what can reasonably be expected to happen, when and why. Too,
they are more impressed with a financing request that shows enough confidence
and savvy to have ordered an independent feasibility study.
Mco Financing Consulting does feasibility studies
and we do them right. Their scope and quality are guaranteed to meet the
expectations of both private investors and financing sources.
Costs range from $10,000 to $63,000 plus all direct
expenses depending on where the project is and how much time will have to be
spent traveling and in the field. Generally, a complete feasibility study
should be completed within 3-4 weeks of starting it.
Any other assistance can be obtained on an hourly
basis or a negotiated fixed price.
Our professional fee is $270 per hour plus exact
expenses incurred in doing the work.
A "rule-of-thumb", based on documented
experience, is our fees usually return minimum multiple of at least 50 times.
If you spend $20,000 on a project, you should expect $1 million - or more - in
benefits or results.
The consulting might help you assess an acquisition,
develop a marketing or strategic plan, explore development ideas (along with
their attendant costs and probable benefits), structure an investment
opportunity or improve your operation by increasing revenue and/or reducing
expenses.
Financing Tips
Here is tip Number One -
Never pay an up-front, commitment or origination fee
to a funding source without an ironclad guarantee it will be refunded if a loan
is not made. (A commitment fee is required AFTER the lender’s due diligence has
been satisfactorily completed and they are ready to commit funds. This fee,
usually 1% of the requested amount CAN OFTEN be negotiated down, but CAN almost
NEVER be negotiated away or be moved to closing.)
Here is tip Number Two -
Perform Due Diligence on the funding source to learn
their track record of returning commitment or origination money when they do
not make the loan. (Please re-read Tip Number One).
Tip Number Three -
If there is a real estate acquisition involved, get
an MAI appraisal and include it in the package. Don't wait
until they ask you if you have one and don't wait until they order you to get
one. It is required, so get it up front. Doing so shows the financing community
you are serious and committed. The appraisal must be done by an accredited
appraiser (MAI is universally recognized) and the appraiser must have eclectic experience
in the type of property being considered. Be sure the appraiser will re-issue
the work in favor of a specific lender or financing source.
On occasion the lending source will order their own
appraisal - at your expense...can't be avoided. But, if you have your own
appraisal, they can sometimes save you money by having it updated, or at least
considered by their appraiser.
If your plan involves an acquisition make sure to
include something that clearly states the property is for sale and that the owner
can and will sell it. It will improve your chances 1000% if you have an option
showing you control the land.
Include a copy of your credit report too.
Number Four -
There is no such thing as "guaranteed
funding" - (Re-read Tip Number One).
Number Five -
Generally, start-up financing will require at least
30-35% equity and that is if you have a lot of experience in the
industry and that industry is generally regarded as a "good
risk". An acquisition will probably take at least 20-25% equity.
There are however, ways to finance 100% of a construction project,
acquisition, refinance - even a start up - that we can arrange for you.
All situations will have to show good, realistic and
objective cash flow projections.
The absolutely BEST way to show equity in a project
is with a Source and Use of Funds Statement! Expenses you have incurred such as
ordering an appraisal or having a consultant prepare a business plan and a
feasibility study can be shown as "equity" in the top half of the
statement.
Number Six -
Don't forget, your business plan will most likely
show the merits of the proposal, e.g., it is a good business, but that doesn't
mean it is a good investment opportunity or loan risk. Nor does it mean it will
be seriously considered if it is not presented in a style and format lenders
expect.
Your business plan must tell the outside money
source why their investment will be safe, how and when it will be repaid, how
much interest they will earn and what it will be secured by.
If you want to borrow money, you have to show how
the new funds will help you make money.
In addition, you also have to show how the new money
will enable you to make enough extra money to pay back the
loan/investment and its interest. Going into debt without being able to paint that
picture is not only unwise, but close to impossible.
Number Seven -
Exclusive
Fee Agreements and Non-Circumvention/Confidentiality Agreements
are a clear signal to the financing community that you and your intentions are
real.
Both give the financing source assurance that
unexpected claims for fees won't be coming at them from left field, and because
of the time limit in the Fee Agreement, they know they can devote their
attention to the deal and not have it yanked out from underneath them.
If you are considering working with someone on a
non-exclusive basis, you will probably find your deal will be “shopped” rather
than “sent” - that “shopping” can and does often backfire when
credible financing sources see a deal more than once or hear it is being
shopped around. Targeted submissions to interested lenders and sources always
produce better results and those sources expect their clients to be serious.
The forms and their language of both our forms have
been accepted and approved by all our funding sources.
Number Eight -
Don't
give up! There
really isn't a good reason to give up...not now, not ever. Expenses can be
taken out, private/equity partners can be brought in, an insurance product can
be used to create a guarantee or the project can be phased. There is a way to
do it, although admittedly, some ways will cost more than others.
It always comes down to "do the numbers make
sense for you and the financing source?"
To
your success!
John Moore
To learn
more about how we might be of service to you, please send a quick email to jmmco@charter.net
to start
a rewarding conversation leading to the resolution of your financing needs.
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if you
have any questions or would like to discuss a particular situation.
314-795-2700
FAX 314-754-9744
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1999 through 2006 Mco Financing Consulting