Lack of understanding

1. LACK OF UNDERSTANDING BY THE UNDERFUNDED BORROWER
AND THE
LACK OF COMPREHENSION BY THE UNEDUCATED FINANCE BROKER
Funding on any scale is expensive and on a Big Scale/Large Cap it’s
expensive for both “Borrower” and “Lender” as money in the current
economic climate is more difficult to obtain, interest rates are starting to
climb and due diligence on behalf of the “Lender” is becoming more
important than ever, and still the misconception that 100% funding is
available to all, is prevalent in the “Sub Prime” market place, this internet
myth is fueled in part by uninformed and financially uneducated “Brokers”
that subscribe to various web sites and Blogs around the internet all talking
about “Up Front” fee scams, and the “Underfunded Borrowers” insisting
upon all normal and standard fees for both due diligence and legal being
paid for by the lender and subsequently THE “Lender” being reimbursed by
the “Borrower” at closing, with monies that the “Lender” is giving to the
“Borrower”, How unreal is this picture?
So what we are to understand from the paragraph above, is that someone,
the “Borrower” has an idea for a business venture, but lacks the funds to
have the deal culminate. It’s clear that they do not have the where with all
to follow conventional funding practices and protocol established over
many years; project submission, review, indicative/provisional/draft term
sheet, Due diligence including site visit if required, formal term
sheet/finance contract, closing, Rather, they require no demand their own
protocol, Project Submission, Closing. What this tells me is that the
“Borrower” does not have the money to have his project funded and is
relying on others to make his dream come true and if this does not happen,
they can always blame it on the “Lender” for having outrageous business
practices and demands, and they can vent on their favorite “Poor me”
blog or web site!
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2. This type of “Underfunded Borrower” fails to understand that the money
they are borrowing or buying in the true sense of the word, comes from
multiple sources and not just from the lenders bank account, where he just
happened to have a large amount of cash sitting around waiting for this
particular client to come along, funding comes in many forms, bond issues,
credit lines, joint ventures, syndication, debt, asset the list is endless, but the
most important part is, that it costs the “Lender” money to offer money, so
our “Underfunded Borrower” wants our lender to add more expenses to the
already large debt and huge risk that the “Lender” company is incurring by
“Carrying” the “Borrower” and paying anywhere from $50,000 to $500,000 in
due diligence costs and legal fees on the “Borrowers” behalf, and all the
money that the “Lender” invests on behalf on the “Underfunded Borrower”
can be thrown out of the window, if the “Borrower” decides not to go
through with the finance transaction, all at no risk to the so called
“Borrower”.
We hear comments from the “Underfunded Borrower” and the
“Uneducated Finance Broker” that this is a risk business and the “Lender”
has to understand that, quote “If they want to do due diligence on my
company that’s up to them, they want it they pay for it” What the
“Underfunded Borrower” fails to realize is that the main goal of starting a
business is to make money; However, in order to make money, money is
required to properly launch and maintain a business. The required amount
varies from entrepreneur to entrepreneur, because each has his/her own
unique goals and needs. Proper financing is crucial because even before
inception, the entrepreneur is in competition with the already established
businesses; therefore, Insufficient funding can lead to financial difficulties, at
the least, and at the worst, bankruptcy.
The “Borrower” that will not pay any fees until the loan has closed, what sort
of risk do you think he represents to the “Lender” and more to the point, do
you think the ”Lender” will even consider such a client, the answer is NO! If
you want to borrow millions of dollars, then expect to have to put your hand
in your pocket and pay for services tendered to you and stop hiding behind
smoke screens and complaining about scams, either you want to own your
own business or you don’t, there are no if ands or buts where the lending of
money is concerned.
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3. There are companies out there that promise “no fees up front!” but that
cannot be real, as there is no way that a REAL LENDER will perform all the
required actions and run the risk of the “Underfunded Borrower” walking
away from a transaction because they have buyer’s remorse, or develop
cold feet, that’s why the “Lender” requires the “Borrower” to pay for the
standard actions involved in getting a loan, they want the “Borrower” to
“Have some skin in the game!”
Some Finance companies are insisting upon the applicant’s company
having more and more pluses, as they rightly should for example:
- Company to have minimum value/company enterprise/assets in $50 Mil,
USD/$100 Mil and above.
- Company to have min 3-5 years audited financials.
- Debt/income ratio to be maximum 30% debt and 70% income or better.
- Must have capital reserves.
- Can be a private company or public company.
- Must be a growth company, willing to expand and consider being publicly
listed in the future, or if already listed to consider a secondary listing.
OK we are all permitted to “Cherry Pick” deals especially if we have been in
the business for some time, but Gentlemen, this is the future we are talking
about, what happens today will grow and become standard practice.
Recently we had a project for $350,000,000 submitted to us that had strong
potential, after review and at the lenders instructions, we informed the
“Borrower” and issued the indicative/provisional/draft term sheet and
informed them that the next step was due diligence on the project, site visit,
license’s, land leases, construction permits, energy end buyer agreements,
etc., along with the documents, we issued an invoice to be paid as a
retainer fee for a well-known and recognized due diligence company, one
would think that we had committed an act of treason rather than take a
large step towards funding their project. We informed the “Lender” that the
“Borrower” had advised us that they did not pay etc, the “Lender”
instructed us to issue a Termination of Agreement letter (Cease and Desist)
and move on to the next client.
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4. I can hear the muttering and mumbling
from disgruntled brokers, but if you take
your time and read what is written you
will comprehend, that “nothing is for
nothing ever yet was born”
(philosophical expression from a thesis
first argued by Parmenides an early 5th
century BC Greek philosopher) although
I prefer “Skin in the Game”
(philosophical expression coined by
renowned investor Warren Buffett
referring to a situation in which high-
ranking insiders/owners use their own
money to build the company they want
to be up and running) if you don’t have
funds to pay for the standard fees, talk
to the local government, enterprise
groups or whoever will listen to you, tell
them about what you want to do, offer
shares in the company, who knows you
may be talking to Warren Buffett……….
Please submit all projects and requests for funding via email to the following
email address: submissions@mcangus-group.com
Marbella, Malaga, Spain
Telephone + 34-638-601-562
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solicitation or offer, or recommendation, to engage in any investment activity, to effect
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published and opinions expressed are provided by RMG Capital Corporation for personal
use and for information purposes only and are subject to change without notice. RMG
Capital Corporation makes no representation or warranties of any kind (either express or
implied) that the information and opinions expressed on this RMG Capital Corporation
document are accurate, complete or up to date.
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