Avatar's Blog

Many lona requests are accompanied by business plans and projections on which someone has evidently spent a great deal of time. While it is important to develop plans and understand the potential up and downsides of the business or property purchase you are about to engage in, it is not something that will sway a lender.

Lenders rely on prior profit and loss statements, not projections, when determining whether to fund a loan. Now, this is not to say that you should not attach or include a business plan and projections with your loan request. It is good for a lender to know that you have a good handle on your business and a good plan for the future. Just remember to focus on facts - what has already happened - rather than projections as the basis for your loan request. If you are new to the industry or property and have no past financials, discuss this lack with your broker and / or lender. Ask what will be needed to support your loan request instead. In general, the lender will rely heavily on your personal financial statement and on P&Ls from other endeavors you are involved in, if available.

One of the most difficult things for borrowers and brokers to create seems to be the Executive Summary. It's imposing name seems to indicate a formal document that might require the services of a professional constulant. Nothing could be farther from the truth. An Executive Summary is merely a summary of the 'story' behind the loan request you are making and an indication of what you are asking the lender to do. Now, that, at least from this writer's experience on the phone with quite literally thousands of callers, is something that every borrower wants and can tell easily and eagerly.

An executive summary should be anywhere from one paragraph to a page or so long. Good writing skills will help your case, so use spell check and consider your grammar carefully. Use bullets to list items, rather than creating run on sentences. Put things in order, such as:

• you bought the property
• you did this and that to it
• therefore it has increased in value
• now you need $xxx
• to accomplish xxx
• which you will complete in xxx timeframe
• at which point you will sell, refinance, or have another exit strategy

Basically, in an Executive Summary, you are writing a short story of the what was, what is, and what is going to be about the collateral property and the business that will support the monthly loan payments. Do not spend a lot of words talking about personal matters or financial troubles; unless they are solely responsible for the requirement of the hard money loan, they are parenthetical to your story and will not help you obtain a hard money loan. Stick to dates, facts, and values; stay focused. And proofread your summary before submission.

Avatar Financial Group funds commercial hard money loans with rates as low as prime + 7% and 4 pts. Depending on the complexity and risks involved in your specific project, rates may be different.

Terms for commercial hard money bridge loans generally range from one to three years, providing flexibility and sufficient time for the borrower to arrange for conventional financing or alternate means of the loan repayment.

Avatar Financial Group wishes our fellow citizens and residents of the United States a very happy Independence Day. On this day, we extend a hope that we all will continue to reach for the highest ideals on which our country was founded.

Avatar Financial Group funds hard money commecial bridge loans for the purchase or refinance of commercial, industrial, or investment residential properties. All loans are bridge loans. The terms are one to three years. The purpose of these loans is, quite literally to "bridge" a gap between whatever circumstances exist today that prevent a borrower from seeking a conventional mortgage for the subject property and the 'curing' of those circumstances.

If you are purchasing a property and simply need to close quickly, your exit strategy may be as simple as to refinance after closing at leisure. No 'cures' will be needed; banks and conventional lenders simply take too long to take advantage of some very good property purchases. On the other hand, if your situation includes personal or corporate credit circumstances, or the property you are purchasing does not qualify for a conventional loan, you will have between one and three years (at your option) to alter these circumstances and obtain a conventional loan, refinance with another hard money lender, or sell the property, as appropriate.

Avatar Financial Group receives and reviews many loan requests each week. If you are purchasing property, you can demonstrate your seriousness by providing documentation indicating the existence and availability of the 20% minimum downpayment required of you as a purchaser at closing.

Avatar funds according the following equation:

100% - Total Cost of Property

  65% - Avatar Financial Group Loan

  20% - Minimum Cash from Borrower at Closing

  15% - Subordinated loan such as a Seller-Carryback Loan or additional cash from borrower

The above equartion is a general view of how a hard money property purchase can be made. Naturally, the borrower can put up more cash than 20% and Avatar can lend less than 65% of the total cost. But the borrower should not expect to put up less than 20% or to have hard money cover more than 65%. On rare occasions and certain circumstances, even these percentages can change. However, to receive top priority in a purchase loan request, include a bank statement or other document indicating the existence of these minimum funds available for closing. Doing so shows Avatar that you are a serious investor and are ready to close.

The condition of collateral property is of great importance in determining the value of subject properties. If your property is valuable, but in need of minor cosmetic uplifting, take care of as much of that as you can before submitting your loan applicaiton. Paint, signage, and cleaning are often some of the least expensive and most effective methods of demonstrating that critical "pride in ownership" of a subject property.

If you are purchasing property, obviously this will not be possible. Construct a short list of low-cost upgrades that will significantly increase the value of the property in the eyes of potential buyers which you will accomplish upon purchasing the property. Demonstrate the multiple uses of the property and how they will be valuable assets to the community in which the property sits.

Hard money lenders send out their appointed appraisers to review collateral properties and determine the quick-sale value - what the property will change hands for today. If you are buying a property, chances are that number will be what you are paying for the property. If it is less, consider it a warning not to buy the property at the sum you were considering. If you have a sale agreement with the seller, the number will not come in at more, as your offer for purchase is the number at which the seller is willing to sell. He or she required no more to agree to sell.

If you are refinancing a property, you may want to help the lender determine the quick-sale value of your property in the following ways.

1. Find out what similar properties are selling for in your area
2. Look at the property and consider what other uses it might have. An old inustrial building no longer valuable in its old capacity is being converted into heated, locked retail self storage units for antique dealers and collectors by a savvy owner. His vision helps the lender see a valuable use and more potential buyers for the building, thereby increasing its value.

Appraisals of the property you wish to collateralize for a hard money loan are always welcome as part of your loan request package. However, they are not required. If you have a recent written appraisal, you can email or fax it in to support your loan request.

The purposes of the appraisal is, of course, to establish and validate the value of the collatera property. Note that in the event of  a purchase, the value of property will be the sum you are paying for the property, not the "retail appraised value".

During the due diligence process, another appraisal of the property will be conducted - even if an appraisal was just completed. In fact, the term 'appraisal' is a mis-nomer for what is accomplished during due diligence. What happens is this:

A licensed real estate appraiser is hired to provide consulting services to the lender. She or he travels to the subject property for a personal inspection, reviews any existing appraisals, tax records, and determines what the local real estate market looks like, the optional uses for the property, and the likely number of potential buyers for the property. This consultation service yields a 'quick-sale' value of the collateral real estate that may be at or somewhat below the retail appraised value of the property.

P&Ls is an abbreviated term for "Profit and Loss Statement". A P&L is generated for the bussiness or other entity that will support the monthly loan payments. It will tell how much is coming in and how much is being spent each month over a period of time, usually 6 month or one year increments. The difference is the net operating income (aka NOI).

This financial document can be created by you, your accountant, or your company's financial personnel. You will need to sign the P&Ls for your loan package, acknowledging that they are true and correct.

P&Ls serve to tell a hard money lender whether you can afford to make the monthly payments on the loan you are requesting. Avatar Financial Group likes to see income to expense ratios of 1:2 to 1. In other words, you should bring in at least 1.2 times the amount of money you spend on expenses each month. This gives you a buffer in the event that you run into a bump in the road. Avatar makes loans that make sense for both the borrower and the lender - use the P&Ls to determine for yourself whether and how much of a loan makes sense for your business.