finance analyst

PROBLEM

Since early 2006 to the present our financial system in this country has been in disarray and significantly crippled. Hundreds of banks have already failed and been closed; hundreds more have been forced into mergers (shotgun marriages) with stronger banks; hundreds more are operating as “zombie” institutions-they look like banks and they try to act like banks but they cannot make loans. Most of the “too big to fail” banks based in New York, California, or Atlanta appear to be operating normally, but the truth is they are not lending to the “little guy”. They are lending to the publicly traded corporation primarily. In plain English, getting a loan from a bank for the average borrower is next to impossible.

SOLUTIONS

- Don’t operate your business or don’t do the transaction
- Pay all cash-don’t borrow
- Borrower from non-banks-friends, family and private lenders
- Do transactions using non-traditional methods-creative financing

JUST WHAT IS “CREATIVE FINANCING?

Creative real estate financing is an all-inclusive term. It essentially means arranging a transaction whereby any and all types of financing is considered to do the deal. Most or all of these types of financing happen to fall outside of the standard government mandated banking guidelines and restrictions. The financing vehicles considered do not conform to Fannie Mae, Freddie Mac, FHA, VA, or other HUD guidelines.

Examples of “creative” financing vehicles are: Private Party Financing, Seller Financing, Bank lending that does not comply with the HUD guidelines, Exchanging Equities, Lease with Option Financing, Contract for a Deed Financing, Equity Sharing Financing, Home Equity Financing, Credit Card Financing, and any combination of the above.

EXAMINING “CREATIVE FINANCING” TOOLS INDIVIDUALLY

Of all of the various types of creative financing tools mentioned above the most common and the most easily understood is private party mortgage financing, which includes seller financing.

The underlying concept is that the bank is not involved in the transaction and the private party lender takes the place of the bank. There are many advantages to removing the bank form the transaction. The main benefits are:

- Qualifying (accepting) the borrower is the decision of the private party
- Qualifying (accepting) the property is the decision of the private party
- The interest rate and the monthly payment is the decision of the private party
- The maturity date of the loan (balloon date) is the decision of the private party
- The down payment amount is the decision of the private party
- The time necessary to close the loan is much shorter
- A valuable, long-term stream of income is created
- The interest earned may be higher than any other available investment

All of these benefits, when combined, make private party mortgage financing a very powerful tool to cause a transaction to close that otherwise would have failed. And, additionally, they may offer investment benefits not elsewhere available.

THE OTHER SIDE OF THE COIN

Now, after examining the benefits of private party financing, we should, in fairness, look at the negative aspects. No tool is the perfect tool for all jobs, and no type of financing is the perfect type of financing for all transactions and for all people.

The negative aspects are summarized below:

- Emotionally, not everyone is comfortable waiting for monthly payments
- Emotionally, not everyone is comfortable with financial details
- Emotionally, not everyone is comfortable with a risk of loss
- Emotionally, not everyone is comfortable doing something new
- Practically, a lump-sum of cash may be needed now

MAKE IT A WIN-WIN TRANSACTION

It is very important to honestly and objectively evaluate each part of the financing transaction. The goal is to make it be a win-win transaction for both parties. Are the personalities of the borrower and the lender compatible? Has the note and mortgage been properly structured so that there is a high probability that the borrower can meet his obligations over the term of the loan? Has the lender anticipated accurately his future need for cash flow income and lump-sum income?

As with most important things, the devil is in the details!

In subsequent articles we will examine some of the other types of “creative financing”.

Lawrence Tepper specializes in:
PROMISSORY NOTE SERVICES, VALUATIONS AND BROKERING EXPERT WITNESS AND EXPERT CONSULTING SERVICES OFFERED

EDUCATION AND TRAINING
1956 Law Degree/Accounting Minor from University of Denver
1961 to Present Colorado Real Estate Broker Specializing in Promissory Notes
1984 Certified Commercial Investment Member Designation From National Assoc. Realtors

Business owners and managers want to compare equipment finance companies to their bank and for a good reason; a bank is a company’s first point of reference when borrowing money or financing equipment or an expansion project. A bank is the most obvious place to start and a secure place to store your money and use their multiple services. But what a bank does not do well, both historically because of their structure and the recent tightening of the credit market, is offer business financing for capital assets (equipment). Yet many people get confused when looking for an equipment loan because they are not seeing the whole picture; this is a case where you definitely want to compare apples to apples to get the best results.

Here are a few points to compare; these are not set in stone but based on years of experience, these trends apply a majority of the time.

1) Total Dollars Financed – banks normally require that you keep a balance of 20% or 30% of the equipment loan amount on deposit. This means they are only financing 70% or 80% of your equipment costs because you have to keep a certain amount of YOUR money in a fixed account for the duration of the loan. In contrast, an equipment finance company will cover 100% of the equipment including all “soft” costs and will only request a one or two month prepayment. No fixed deposits required.

2) Soft Costs – banks also will normally not cover “soft” costs like labor, warrantees, consulting and installation which means these costs come out of your pocket. An equipment finance company will cover 100% of the equipment price including “soft” costs and some projects can be financed with 100% “soft” costs which no bank would ever consider.

3) Interest Rates – this is the most popular question in the finance world; what’s my rate? If the bank requires 30% deposit in a fixed account then that automatically raises a 5% interest rate to a 20% rate. Now people will argue that you get that deposited money back at the end of the term but that is money which you do not have access to and has an opportunity cost associated with it. Equipment finance companies target their financing rates between 3-5% for cities and 7-9% for commercial financing which is a real fixed rate and not under-stated as the bank rates can be thus independent finance company rates are very competitive with “true” bank rates.

4) Process Speed – banks often take weeks to review and approve a finance request while independent finance companies normally only take a few days and can work much more quickly. Finance underwriters only review business financing while a bank has other types of requests clogging their channel.

Banks also have many more levels of approval and review to pass while independent finance companies normally only have two, underwriting and credit committee. Even with complicated deals, the finance company’s process is always faster.

5) Guarantee – banks require, as a standard part of their documentation, a blanket lien on all assets, both personal and business assets are used as guarantee against default on the loan. Your business assets, your home, your car, and your boat can all be on the line when entering into a bank transaction. This may also be the case with an equipment financing company but if your business operation is solvent then only your business will be listed as collateral and not your personal assets; this is known as a “corp only” approval.

6) Monitoring – banks require yearly “re-qualifying” of all their business accounts which means on the anniversary date of your loan each year, you must submit requested financial documents to assure the bank that everything is going well and nothing has affected your business in a negative way. Finance companies do not require anything during the term of the loan or finance as long as the monthly payments are made on time. Nobody will be checking into your business or policing what you do.

When comparing your bank financing to an independent equipment finance company, you have to make sure you are evaluating all the key parameters, not just one. Clearly, the fine print and terms of the transaction are more important than the big numbers. Banks work well within their space but have proven time and again not to be as flexible or solution-oriented as an independent finance company which solely focuses on business lending can be.

As a apprentice filmmaker and learning everything that I have to know to be successful sometimes in life that can be a real struggle at times. Reality is that’s a part of life for everyone.

As we all know that as we grow up we start realizing the truth about the way the world works. As a filmmaker there’s so much hard work, time, effort and determination that goes into being a successful person not just as a filmmaker or even a doctor but in life in general.

I had a few instances where I was struggling in my life and I thought my animations and videos were not really becoming successful because I honestly felt like nobody was looking at all of my own work. I have times where I think that I’m not good enough to continue to pursue my dream as a filmmaker. It’s a negative thought but unfortunately it’s reality.

One day on my Instagram account I was talking to a film director who is also a filmmaker and producer and I decided to share my work with him. I wanted to ask him if my work was good or if I had made any mistakes in my animation films. His response to my content was ‘ I just started watching and I’m already impressed “.That motivated me to continue to do my film work.

Many of my friend’s and even complete stranger tell me how talented I am with my work. I make my own educational films and I create memorable videos for parents who have a child with cancer. I don’t have a degree yet so I’m sure nobody would want to work with me. I have been selected into four film festivals and I start my first credit class at college in about 2 weeks. Nobody knows about my work but just know that I will one day be well known.

In college there are different types of degrees that somebody can get which are associates, bachelor’s, and master degree. I don’t want to do associates degree only because I want to be able to pursue my my passion and my dream as a filmmaker and become where I’m able to do a lot more than what associates degree can do.

I understand that in life we have either a positive attitude or negative attitude and I understand sometimes in our feelings and the way we view the world around us sometimes negativity is something that comes to our minds pretty often. Being negative won’t help you do anything that you would want to pursue in because negativity is a bad mindset even though it’s the reality that we all have some time in our life and we will continue to have a negativity thoughts even though we don’t want to. I will have commitment to be who I truly am and learn how to just do what I want to do and to not ever give up and to keep going and have faith and hope and pray that what’s happening in your life is what you want to do and not nobody else. Nobody should have to tell you what to do in your life and how you’re supposed to live because in life everybody is different and everybody has a different mindset and we all have a different outlook on life. So please don’t do what someone else thinks you should do or not because it only matters to what you want to do and nobody else.