How to present to private lenders

Question

Whenever you present to a private lender, do you have a template package that you modify on a deal by deal basis?  What is included?  I am trying to put together a template that I can present to private lenders as deals become available.  Something professional looking that I can change to suit each property rather easily.  Does anybody use anything similar?

J Scott · Answer

You should expect to provide not just your businesses' tax returns and financial statement, but your personal tax returns and financial statement, along with a recent credit report.

Private lenders are going to offer better rates than HMLs, and in return, they will likely want a personal guaranty along with the collateral...so they need to know that your personal guaranty means something.

Also, if you want to attract private money, I would suggest not going after 100% LTV, but instead put in some of your own money.  As a part-time lender myself, I would never lend to someone who didn't have some of their own skin in the game...

Will Barnard · Answer

The other way is using a lender to fund most of the acquisition, then a partner or gap funder to supply the balance. You will give up equity share, but can arrange $0 of your money into the deal.

Bill already laid out what you need to present to them.

Don't let my comments here discourage you, it is not my intent, only to show you how much you are asking is often not reasonable without some special cirumstances.

Sean H. · Answer

Thanks Bill.

I am looking to put together packages for fix/flip loans.  I would want the most favorable terms (them lending 100% of purchase and rehab, all interest payable upon my exit at closing).  How should I present this offer to them?

So far, what I want to present to them:

- My LLC Operating Agreement
- A personal financial statement showing cash on hand
- Most recent 2 years tax returns for the LLC
- Offer for financing (including terms for the loan I am looking for listed above
- Copy of the property sales contract
- Scope of work
- Comps to show value
- Projected P/L for the project

What am I missing?

Brian Adams · Answer

Sean, you are moving in the right direction as having access to private money will completely change how you do business.

My suggestion is to make sure your presentation covers exactly what it is that you do and what you will be offering the lender should they decide to invest with you.

Make sure to show your track record and prior experience.  A private lender will want to know how many deals you have done and were they profitable.

Also include in the presentation something unique about yourself.  This will help create a certain level of trust with the lender.  The more a person likes and trust you, the more likely they are going to do business with you versus a competitor.

Getting 100% funding is possible if your deal is the best deal for the lender.  Make sure you understand what the lender is looking for so you can match your deals to what they are looking for.

So once you get your presentation done, what is your next step?

Brian Adams · Answer

Sean, I assume you already have a list of potential lenders once the package is done.  If not, take a few minutes NOW and brainstorm who you know and start networking like crazy to build a list.

Obviously you want to target lenders who can actually fund your deal.  It is much more beneficial to obtain five quality contacts that could lead to a business relationship than to collect 25 names of people who can't provide the type of private lending services that you need.

Also, I wouldn't ask the private investor "I have a deal, do you want to invest with me?" Instead, what you should be doing is offering opportunities to the investor. Your offer needs to show perceived benefits to the investor.  Benefits like receiving a better investment return compared to a savings account, CD or money market account or how your business approach is better than your competition.

Now get your presentation done and put it in front of several lenders you know the best.  Make sure you ask them for candid feedback so you can "tweak" the presentation if needed.

Steve Babiak · Answer

Go to a bank, see what they want from you to get a loan, and then you can give all of that to any other private party, telling them that you are supplying exactly what a bank would want to see.  Basically, the answers above itemize some of those things a bank seeks.

Bill Gulley · Answer

Let's first start with what kind of "investing" you are doing....is it a single family purchase ready to roll or a rehab, new construction, multi-family or commercial?

Some lenders are simply asset lenders, making loans at low loan to values based on the property. For a better loan from a private type you'll need basically the same information that is necessary for any bank or secondary market loan.....as I would.

If you are in a business entity, like an LLC, I want to see your documents, filing, operating agreement, books and minutes pertaining to the transaction.

You may need a business plan, depends on the transaction.

Pro-forma income  statement, that is the estimates of income and expenses dealing with that property and your overall business, estimating at least three years in the future. Be very conservative, if I see silly assumptions it tells me that the applicant lacks sufficient business knowledge.

I'm going to verify income, cash assets, liabilities and get credit. That doesn't mean you need to qualify as you would at the bank.

I'm looking for the ability to repay the debt, not just the payments, but also the exit that I'm banking on at the end.

Chris Martin · Answer

Sean H. regarding "If a potential project came across your desk with those terms that had you at 65-70% arv, but were deffered interest and you were putting up 100% of funds, would you just say no, or negotiate to a middle ground?" I would evaluate the total package, meaning that if the borrower had a solid history (track record) etc., these attributes would weigh high in my decision and may make the deal acceptable. In general, though, I won't do deals where the borrower does not have 'skin in the game'. There are always tricks, like extra collateral, equity kickers, etc. that can change the deal yet get the borrower in with limited capital.

Sean H. · Answer

I meant my comment about saying no to the deal flat out or trying to negotiate as a real question, not rhetorical. I have a good chance at being wrong, but would like to hear what actual private lenders would say.

Brian, my next step is to put the package in front of potential lenders and see who wants to do the deal.

Chris Martin · Answer

Some good comments above.

Along the lines of what Steve Babiak said, why not just start with a Form 1003? And as Bill says, "...I'd rather be given too much info as not enough." I agree.

BTW, I look at borrowers attributes as 'multiplicative'. If they have a zero anywhere... like a foreclosure they didn't disclose... then the result is zero.

How to present to private lenders

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