Investing and Income options that I use

[rookieNYC]

badmash 007,
 Yeah..I agree..I was taken back to read the guy was trying to sell sandals that were leftover from a deal..In my mind I have a list of people that I would deal with to unload that garbage but Im more curious what methods this group uses and if they secure the real estate that houses these companies or not..Im not interested in doing that kind of lending though...I have areas of certain franchises that I lend on and I understand the business very well..I have over 20 years invested in the company so when I bankroll a guy Im corfortable which ever way the deal goes..You have to go into every deal and prepare every deal like you are NOT going to get paid back...Every deal has to be structured in such a way that you naturally heavily favored if the deal falls apart..You never want to give the option of the borrower walking away pain free if he/she chooses to bail on the project or default on the loan..This way you have *their* cu$hion to sit on after they bail/default on you...And you compound this by having everything in writing by attorneys...

[d_sbrown]

Rookie,

Thanks for sharing some interesting insights.

I have some questions about the lending to businesses.  Why are the returns so high?  Is it very short term notes?  What business can afford to pay 25% for operating money?(  assuming its for operating )  What regulations or other hoops are you having to jump through?  From your posts, you are apparently doing these loans on a collateral basis?  If that is so, why can't these particular businesses go elsewhere to get a better rate?

Thanks,

DB

[rookieNYC]

dsbrown,
Rates+fees+points...Many businesses can afford short term funding to be high...They may have a huge order waiting to be filled to make their year and not have the funds to buy more merchandise..So if 100k is going to make them $500k whats the big deal to pay high interest..And why cant they go to banks,very obvious in the current environment..There is very little ease for a business owner to find financing..Its just very difficult and alot easier dealing with a collateralized lender..Also consider business loans for the most part dont exist at all..Funding is all but shut down..Private money is the way to go for a long time in this country..Even when things loosen up you will have to be a spectacular borrower to get investment money or business loans...I currently have a piece of a corp who I know for 20+ years has a guaranteed rent roll every year of X amount..They wanted to borrow X amount for a said period of time...Collateral is property and business UCC (lien)...I will do these deals all day long if I was presented with them....

[d_sbrown]

thanks for the response Rookie,

I am not seeing clearly here why this is so high.  Could you elaborate on the risks?  Are these high risk businesses?  If the loan is fully colateralized, and short term, with solid businesses with orders to fill, I would give them money considerably cheaper.  And is that high rate on the portfolio over time or on each individual loan?

A side question.  To do this type of borrowing, you must use a pool of cash that goes out and comes back in.  What vehicle do you hold the funds in that aren't being used?

Also,  Are there regulations that you have to adhere to if you do this kind of lending?

Thanks,

Darin

[rookieNYC]

Business loans are generally higher especially when there isnt cash to use as collateral as ridiculous as that sounds...Asset based collateralized lending is going fetch higher rates..If these companies had money they would simply use their own or go to a big bank and deposit their money in CD at %2 and the bank would match every dollar in a loan to build credit for the corp..Banks are not lending...Business lines of credit are extremely tough to get..So if a business gets an order on the fly you think they want to risk waiting weeks,maybe months to get funding?...They rather go privately..And yes..Whenever you are lending you must make sure your rates do not go over the state Usury rates/laws..Very serious offense..

I keep the funds in a typical sweep account..You must have an account that is easy to wire funds out of..Some typical banks like the one by me are a pain in the neck to wire funds in and out of..

Risk is simple..default...I know the loans are collateralized but in the end all we want is the veil of a threat to take possession of the collateral..I dont ever want to take the actual assets..I just want my ROI and be on my way..Any type of business loan is risky..

As for having a return of x% on the entire portfolio that is the name of the game...Median average yield..If I can get x here and y there...And have a median of t Im happy..Compounding interest is how you want to play and circulation of funds in well protected over collateralized deals..